Defining the most common types of stocks

The two types of stocks you’ll most likely hear about are common and preferred.

Common stock: Common stock is the most basic ownership in a company through a security (the monetary vehicle of a stock). A common stock allows the shareholder (stock owner) to vote for board of directors as well as company policies.

Preferred stock: Preferred stock is the ownership in a company through a security that has a set dividend (a portion of the company profit) that is paid out before dividends to common shareholders.

Preferred stocks usually don’t have voting rights and are less likely to experience capital appreciation. Common stock values will go up or down based on performance and other factors related to the company. If a company goes bankrupt, preferred stock shareholders are paid back after the creditors, but before common stock owners. This means that common stockholders are less likely to receive payout of any assets in a bankruptcy situation.

Some companies pay dividends to common stock shareholders to share the profit. The dividends from these stocks are often paid on a regular schedule, giving shareholders a source of income. However, a company can discontinue dividends at any time.

Defining ways to classify stocks

There are a couple of ways you can classify stocks. Stocks are often classified as either growth stocks or value stocks.

Growth stocks: Growth stocks are for companies where revenues and earnings are expected to increase at a faster rate than the average company within the same industry. This means investors buy shares with the hope that the company’s share price increases over time. Since the broader stock market has historically trended upward over the long haul (with some downturns along the way), price appreciation-based stocks are a popular way to approach investing. Of course, the past performance of a stock is no guarantee of its future performance.

Value stocks: Value stocks are stocks of a company with solid fundamentals that are considered undervalued or discounted compared to industry peers, usually due to events such as a downturn in quarterly earnings or an industry-wide dip in sales. Value stocks tend to be more mature companies and they grow in value more slowly than growth stocks. Value stocks are also more likely to pay dividends to shareholders.

Overall, stocks may be strong investments, but this isn’t to say all stocks perform well. When you purchase a stock, you’re buying shares of a company. As a shareholder, you own part of the company and have the right to a portion of the company’s profit. But not all companies make a profit consistently or even stay in business. While others go on to great success that may reward stockholders.

Investing in individual stocks vs. stock mutual funds

As an investor just starting out, if you opt to purchase and manage stocks on your own, you may face several challenges. Individual shares of stock can be expensive and purchasing a group of stocks to achieve good diversification often requires a large financial investment. Without the benefits of diversification (which can help reduce market risk but doesn't eliminate it), your portfolio of a few stocks may contain a higher level of volatility that doesn’t match your comfort level. However, individual stocks do offer a great degree of flexibility when it comes to which companies and industries you want to invest in.

Stock mutual funds provide you with the ability to invest in groupings of equities.

Depending on the fund’s objective, you’re given access to the stocks of a wide variety of different companies—foreign and domestic, large and small and from multiple industries. With a stock mutual fund, your investment is diversified and managed by skilled professionals to help you be better prepared for the inevitable periods of market uncertainty.  

Stock fund types

Mutual funds are often focused on a single asset class, but may contain a mixture of asset diversification. Here are the most common types of stock-based mutual funds. The market capitalizations listed are classifications of general industry terms and may change based on market movement. 

Large-cap funds: Large-cap funds hold stock from companies that typically have a market value of $15 billion and up.

Mid-cap funds: Mid-cap funds hold stock from companies that typically have a market value of between $5 and $15 billion.

Small-cap funds: Small-cap funds hold stock with companies that typically have a market value of between $1 and $5 billion.

Growth funds: Growth funds are made up of stocks with a high potential for price appreciation but may not pay regular dividends.

Value funds: Value funds are made up of stocks that are generally understood to be undervalued compared to industry peers and they may be more likely to pay dividends.

Sector funds: Sector funds are concentrated on companies in a specific segment of the stock market, such as technology, natural resources, utilities, etc.

International (foreign) funds: International funds invest in assets outside of the country you live in. 

Emerging market funds: Emerging market funds generally invest in financial markets in developing countries. These funds could focus on a single country, or group several emerging market countries together. 

How you choose to invest ultimately comes down to your financial goals and the level of risk you’re willing to take on in exchange for potential return. 

What Thrivent Asset Management offers

Stock mutual funds with Thrivent Asset Management are designed to give you access to a wide variety of carefully selected companies in a simple, yet flexible way. When you choose to invest with Thrivent, you’ll benefit from the expertise of our investment professionals and the convenience and choices we provide to make investing easier.

See all of the mutual funds offered by Thrivent Asset Management.

¹ “Which Investments Have the Highest Historical Returns?” Investopedia. April 15, 2024.