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. Retirement

    When The Offense Changes, The Defense Needs To Adapt

    Sports are like investing: you don’t blindly use a strategy without considering your opponent’s next move, his strengths, and his weaknesses. To win, you have to adapt.
  2. Markets

    Why Apple Can Be a Value Stock But Not a Defensive Stock (AAPL)

    Examine Apple's 2016 price decline to identify its potential as a value stock. Contrast Apple's characteristics with defensive stocks.
  3. Investing

    Value, Defensive or Cheap Stocks: What's the Difference?

    Do not confuse value stocks with cheap stocks and defensive stocks. Follow a system for identifying value stocks by perusing their fundamentals.
  4. Markets

    Income, Value and Growth Stocks

    Investors 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.
  5. Managing Wealth

    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
  6. Investing

    What is the Stock Market?

    A stock market is where shares in corporations are issued and traded. Stock markets are key components of a free market economy.
  7. Managing Wealth

    20 Investments: Common Stock

    What Is It? Stock is sometimes referred to as shares, securities or equity. Simply put, common stock is ownership in part of a company. For every stock you own in a company, you own a small piece ...
  8. Investing

    Buy High, Sell Much Higher

    Value investing may seem fool-proof, but it carries more risk than you might know.
  9. Managing Wealth

    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.
  10. Managing Wealth

    4 Things That Make a Stock a Risky Bet

    Risk is everywhere and when it comes to stocks it can take many forms. From price risk to volatility risk, there’s a lot investors have to look out for.
Trading Center