Six Different Ways to Invest in the Stock Market

As new stock investors soon learn, there are many different stock investing strategies and approaches that can be employed. In most cases, people invest in the stock market by buying shares of companies they believe in with the hope and expectation that the stock’s price will rise over time. Investors may also enjoy income through dividends along with this capital appreciation. There are however multiple stock investing choices to consider, we outline some of these below.

Common Stock: Long-term ownership in common stock is the most basic form of stock market investing. Common stock represents ownership in that corporation and grants the investor voting rights with regard to the company’s board of directors and policy. Owners of common stock will see their investment rise and fall with the fortunes of the company.

Preferred Stock: Preferred stock represents a class of stock ownership that provides the investor with a higher claim on company assets and earnings than common stock. Although it does not offer voting rights to the investor, preferred stock dividends must usually be paid before dividends to common stock investors.

Stock Options: Stock options are contracts that give investors a way to profit from the future direction of a security or index. With stock options, the purchase of the contract obtains the right (but not the obligation) to buy or sell the security at a pre-determined price on or before the date the contract expires. If the option holder chooses to execute the contract, the contract seller must fulfill the transaction.

LEAPS: LEAPS (long-term equity anticipation securities) are similar to stock options but offer a longer timeframe before expiration- typically more than one year. Given their longer timeframe and higher extrinsic value, the premiums charged for LEAPS are higher than those for standard options.

Equity Funds: Mutual funds are investment pools that offer professional management for investment portfolios that might include stocks, bonds, or other investments. Equity funds or ‘stock funds’ focus primarily or exclusively on common stock investing.

Option Spreads: Under an option spread strategy, the investor buys and sells an equal number of options of the same class but with varying expiration dates and strike prices as a way of minimizing market risk.

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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