Risk and Tax Considerations - Stock Classification Risks
You can also look at the different types of risk in terms of how each applies to different stock classifications:
- Growth Stock
- A growth stock generates a higher rate of return than others in the market; it can also be described as a stock that is expected consistently to provide returns in excess of the company's cost of capital.
- Growth stock are also sensitive to increases in interest rates and inflation because these drive up the cost of capital, and growth stocks, by definition, must exceed these hurdles.
- In addition, growth stocks are sensitive to capital, timing, market, political and currency risks.
- Speculative Stock
- A speculative stock is one that appears overpriced compared to how other stocks in the market are valued.
- Specualtive stocks might be thinly traded and might not even be listed on an exchange, so liquidity risk is a consideration.
- In addition, speculative stocks are sensitive to capital, timing, market, political and currency risks.
- Defensive Stock
- A defensive stock is not expected to lose its value as quickly as others during a bear market.
- As a result, defensive stock are safe havens during economic downturns since they hold their own during bear markets.
- In fact, as more investment dollars search for fewer dependable securities, a defensive stock might actually rise as other sectors fall.
- Defensive stocks also tend to have higher dividends to pay out - or miss - and are thus are sensitive to credit risk.
- In addition, defensive stocks are sensitive to capital, timing, and currency risks.
ProfessionalsTake a look at five primary reasons why financial advisors still choose to recommend mutual funds over other types of investment vehicles.
ProfessionalsDiscover more about the responsibilities of an internal advisor consultant, the average salary he can expect and the qualifications he will need for the job.
BrokersIndependent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
Personal FinanceRIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
Trading Systems & SoftwareLaunching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
ProfessionalsLearn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
ProfessionalsFINRA Series 55 Exam Guide
ProfessionalsFINRA Series 62 Exam Guide
ProfessionalsFINRA/NASAA Series 99 Exam Guide
ProfessionalsFINRA/NASAA Series 65 Exam Guide
- No results found.
The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
Financial advisors must possess various securities licenses in order to sell investment products. The specific products an ... Read Full Answer >>
The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>