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.
Income and Taxation
InvestingFind out how these securities can protect you from a market bust.
InvestingExamine Apple's 2016 price decline to identify its potential as a value stock. Contrast Apple's characteristics with defensive stocks.
InvestingInvestors who buy stocks generally seek one of three criteria: undervalued holdings, growth potential or steady income. The characteristics of stocks in each of these categories differs accordingly.
Financial AdvisorWithout a doubt, common stocks are one of the greatest tools ever invented for building wealth.
Investing2010 could be a good year for defense stocks. Find out why.
InvestingUnderstand the choices that must be made when using excess cash to invest in growth stocks, including different investment vehicles.
InvestingDespite their volatility, stocks as a whole have historically risen in value over time more than any other type of investment.
InvestingThe answer to the age-old growth versus value debate depends on a number of factors. Here's what to consider.
Financial AdvisorDo your homework, have a long term view, exercise patience, you'll find that investing in small market capitalization stocks is no riskier than investing in large stocks
InvestingAre the countless stock categories leaving you puzzled? Here we help you sort through the confusion.