Which Stocks Are Best to Invest In?
In very general terms, the best stocks to invest in are the ones that will make you the most amount money in the shortest time with the least amount of risk. But different investors have different investment objectives and different ways to achieve them, so the best stocks to invest in are the stocks that will best help you achieve your investment objectives.
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Capital Appreciation
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If your goal is to grow capital aggressively, small-cap growth stocks are your best bet because as a group they tend to appreciate more than other stocks. The downside of aggressive investing is higher risk: small-cap growth stocks tend to fluctuate more in price and are more likely to experience substantial price drops in adverse market conditions. These stocks are suitable for younger aggressive investors who can afford risk.
Capital Preservation
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If you have accumulated substantial capital and your goal is to preserve it while achieving reasonable growth, large-cap blue-chip stocks fit the bill. These are stocks in large, established companies such as General Electric, Wal-Mart and Microsoft that tend to be more stable and fluctuate less, but the amount of potential capital appreciation is also limited. These stocks are more suitable for long-term, buy-and-hold conservative investors.
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Equity Income
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Stocks in some industries such as utilities or real estate investment trusts pay higher dividends than other types of stocks. Some stocks have a history of increasing dividends over time, so investors who hold them have an appreciating asset that provides a rising income stream. The trade-off is limited capital appreciation: companies pay out most of their profits in dividends when their growth prospects are limited and they don't need the cash to reinvest in the business. A company can also cut its dividend if it experiences financial difficulties, leaving investors will less income. High dividend stocks are more suitable for income-oriented investors in or nearing retirement.
Timing
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The stock market comprises many sectors and industry groups that are made up of stocks of all sizes. Different sectors or stocks outperform at different times, so the best stocks to invest in are the ones that are currently outperforming. At some point large-cap stocks may be outperforming small-cap stocks, so even aggressive stock traders may favor the former; high dividend-paying stocks may go in and out of favor with investors depending on factors like interest rates or industry conditions, so even conservative, income-oriented investors may need to reduce the size of their holdings in equity income stocks to minimize risk.
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