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

Related Articles
  1. Investing

    Guard Your Portfolio With Defensive Stocks

    Find out how these securities can protect you from a market bust.
  2. Investing

    A Review Of Defense Stocks

    2010 could be a good year for defense stocks. Find out why.
  3. Investing

    Top Defensive Consumer Stocks for 2017

    These 4 defensive consumer stocks can add stability to your portfolio.
  4. Financial Advisor

    Small Cap Investing: How to Think About Illiquidity

    Do 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
  5. Investing

    How to Invest Your Excess Cash in Growth Stocks

    Understand the choices that must be made when using excess cash to invest in growth stocks, including different investment vehicles.
  6. Investing

    The Alphabet Soup Of Stocks

    Are the countless stock categories leaving you puzzled? Here we help you sort through the confusion.
  7. Investing

    The 3 Highest Yielding Defense Stocks

    Despite challenges, the largest defense firms will remain an integral part of the defense industry and possess yields that should appeal to investors.
  8. Investing

    5 Popular Portfolio Types

    One of the best ways to mitigate risk and realize strong returns is by diversifying your investment portfolio. This can be accomplished in several ways.
  9. Investing

    Best Places to Find High-Dividend Yield Stocks

    Learn about the advantages of stocks with good dividend yields, such as income, stocks in defensive sectors and strong-performing companies.
Frequently Asked Questions
  1. What is the functional difference between GDP and GNP?

    Find out the difference between GDP and GNP, and how each brings a different perspective to the meaning of economic success.
  2. What is the formula for calculating the current ratio?

    Find out how to calculate the current ratio and what that result can tell you about a potential investment.
  3. What is the difference between CAPEX and OPEX?

    Discover the differences between a company's capital expenditures and operational expenses, and find out how tax laws apply ...
  4. What is the difference between positive and normative economics?

    Positive economics is objective and fact based, while normative economics is subjective and value based.
Trading Center