- Tax Planning
- Investments 1: Before you Invest
- Investments 2: Your Investment Plan
- Investments 3: Securities Market Basics
- Investments 4: Bond Basics
- Investments 5: Stock Basics
- Review Risk and Return for Stocks
- Understand Stock Terminology
- Understand How Stocks Are Valued
- Know Why Stocks Fluctuate in Value
- Recognize Stock-Investing Strategies
- Calculate the Costs of Investing in Stocks
- Investments 6: Mutual Fund Basics
- Investments 7: Building Your Portfolio
- Investments 8: Picking Financial Assets
- Investments 9: Portfolio Rebalancing and Reporting
- Retirement 1: Basics
- Retirement 2: Social Security
- Retirement 3: Employer Qualified Plans
- Retirement 4: Individual and Small Business Plans
- Estate Planning Basics
Key Asset Classes and Classification of Common Stocks
Key Asset Classes of Common Stocks
While there are many different asset classes for common stocks, five are the most used in investing.
Large capitalization (or large cap) stocks. These are companies with market capitalization (shares outstanding times price) of generally greater than $10 billion.
Mid capitalization (or mid cap) stocks. These are companies with market capitalization of between $2 billion and $10 billion.
Small capitalization (or small cap) stocks. These are companies with market capitalization of less than $2 billion.
International stocks. These are companies whose major listing and operations are outside the United States and which are considered “developed” by the World Bank and IMF. Generally, this would include Canada, France, Germany, Japan, Italy, and the United Kingdom.
Emerging Markets stocks. These are companies whose major listing and operations are from countries not considered developed by the World Bank and IMF
Classification of Common Stocks
There are a number of different classifications for stocks. You should recognize that these classifications are temporary and that they may differ from investor to investor and from one time period to another.
Blue-chip stocks: These are the stocks of the largest and best-managed companies. There is not a specific list of blue-chip stocks, and the stocks that are considered “blue chips” change from year to year. The phrase “blue chip” relates to poker, where the blue chips are the highest value of chip.
Growth stocks: These are the stocks of companies that are growing faster than average; these companies generally reinvest dividends. These companies also generally have higher price-earnings ratios and higher price-to-book ratios than the market as a whole.
Value stocks: Value stocks are less expensive, compared to the overall market. The companies that offer these stocks generally have lower price-earnings ratios and lower price-to-book ratios than the market as a whole.
Income stocks: These are the stocks of companies that pay dividends on a regular basis.
Cyclical stocks: These are the stocks of companies whose share prices move up and down parallel to the state of the economy.
Defensive stocks: These are the stocks of companies whose share prices move opposite to the state of the economy.