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
TradingFind out how these securities can protect you from a market bust.
MarketsExamine Apple's 2016 price decline to identify its potential as a value stock. Contrast Apple's characteristics with defensive stocks.
InvestingDo not confuse value stocks with cheap stocks and defensive stocks. Follow a system for identifying value stocks by perusing their fundamentals.
InvestingWithout a doubt, common stocks are one of the greatest tools ever invented for building wealth.
Managing WealthThe answer to the age-old growth versus value debate depends on a number of factors. Here's what to consider.
ETFs & Mutual FundsUnderstand the choices that must be made when using excess cash to invest in growth stocks, including different investment vehicles.
Managing WealthDo 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
InvestingA stock market is where shares in corporations are issued and traded. Stock markets are key components of a free market economy.
MarketsAre the countless stock categories leaving you puzzled? Here we help you sort through the confusion.
ETFs & Mutual FundsFind out the best defensive mutual funds for providing your portfolio with downside protection during the next stock market decline.