IPO
All companies that you see on the stock market would have been an IPO at some point. IPO stands for Initial Public Offering. So basically, whenever a company is first released onto the stock exchange, for the first day they are classified as an IPO. You can get shares in a company before it becomes an IPO, and some companies never become one, as they never publicly release shares.
One way that you can get shares in a company before it becomes an IPO is through crowdfunding, a company may announce that they need some money to get off the ground. In exchange for you lending them some money, you will own part of the company. Different companies set different share values, you may donate $1,000 and only get 10 shares, as they are each worth $10, or you may get 10,000 shares, as they are only worth 10c each. A company may come out again to crowdfund again, then your shares could be worth 10% more!
Blue-chip Shares
Blue-chip shares are very stable, they are shares in a major company. These companies are usually high quality, having years of strong growth and regular dividends: which makes blue-chip stocks one of the safest to invest in, they will grow steadily over a period of time. This doesn't guarantee that you will not lose money: no stock will ever be 100% safe, as every company will have times that they don’t grow as fast for a year, or they have a sudden drop of a few percent, but blue-chip shares are usually stable enough that you should still receive the average annual growth that you expected based on past data.
Also keep in mind that blue-chip shares may not grow as fast as other shares, but as said before, they are much more stable and reliable, meaning that over a long period of time you will be much more likely to get a good average annual growth.
A blue-chip company that you most likely would have heard of if you live in Australia, is CBA (the Commonwealth Bank of Australia). It has over 800,000 shareholders, and a strong growth and dividend history, paying around $1.5 biannually (every 6 months).
Growth Shares
Growth shares are shares of companies that are growing in value very quickly. They are usually given the name depending on the percentage growth year on year, the minimum percentage that a company would have to grow year on year would change based on the average growth seen across the whole stock market.
At the moment, a growth stock may grow around 15-25% year to year, but that doesn’t mean that it cannot go higher. You should also keep in mind that growth stocks will eventually stop growing so fast, because they cannot grow forever, they may drop down to around a 10% growth per year, as it would be hard to maintain a 15% annual growth for a long period of time.
Growth stocks are most likely to be new companies, ones that have only recently introduced themselves to the stock market. In order for them to be able to grow so fast, they may not give out dividends, as they will need to keep all of their profits to help grow the company further. These growth shares are usually companies that are coming up with a new product, or software, as it is hard for a new company to grow fast in a market where there are already lots of companies out there that can mass produce their items. These stocks are a lot riskier than blue-chip stocks, as they can fall in value just as fast as they can grow.
An example of a growth share is Afterpay, as after they dropped to $8.90 during the initial fall of the market at the beginning of the pandemic, they grew to $151.92, a 1100% increase, in only 11 months! Afterpay is an example of a company with a new idea, they were the first major company in Australia to introduce the up-and-coming idea of buy now, pay later, which you can learn about by clicking here.
Income Shares
Income shares are usually stable companies that pay large dividends. Stocks that are classified as income shares are also usually classified as blue-chip shares. As both income and blue-chip shares are stable companies, there has to be something to distinguish them, and that is the dividends that they pay. Some blue-chip companies would pay little, if any dividends, but there are also some others that would pay large dividends, and those companies are also classified as income shares. Income shares are also sometimes referred to as high yield shares, as yield is referring to the amount that you would receive in dividends.
This type of stock could be a good choice for an older person to buy, as they wouldn't have enough time to be experimenting with the more volatile high growth stocks, as if they lose their money, and aren't working anymore, then they would have some trouble looking after themselves. By getting income stocks they would be able to get some passive income in the form of dividends, which would be beneficial towards their daily living expenses.
An example of an income stock is Westpac, an Australian banking company, as they have a yield of around 3.5%, meaning that when you get dividends, you will receive around 3.5% of the current value per share. They are also very stable as they have stayed around the same value for the last 5 years, climbing back up to a value around the same as what they had before the stock market crashed at the start of COVID.
ETFs
If you don’t want to purchase individual shares, as you feel it is a bit risky, or you don’t want to spend time researching companies, then buying an ETF may be the thing for you. They are a group of shares that a company has put together, which you didn’t have to do any of the research to find, and you are just buying a fraction of that collection. ETF stands for exchange-traded fund, this is because it is traded on the stock exchange just like any other share, so you can buy them the same way as normal shares, the fund at the end of the name means that it is a collection of many shares. ETFs could be made up of shares from one industry, country, or a range of different companies that may appeal to the same type of person. For example, shares in many companies that are using a high amount of renewable energy, or are trying to reduce waste.
An example of a company that specialises in making ETFs is Vanguard, an Australian company that puts together a few groups of shares and then lets the public buy into those collections. Vanguard has ETFs that fit into some of the stock groups that I have explained in my last few episodes, they have a high growth ETF, a high yield one, an ETF with shares in big companies across the globe, and another only with big Australian companies.
Buying into an ETF means that your money will be a lot safer and stable, you don’t have to worry about a single share going down, because another may go up. If shares in one company are going down a lot, then the company selling the ETF may sell the shares in that company, and buy some in a different company, all without you having to do anything. Considering that sometimes the whole stock market may go down a bit, having shares across many companies would mean that the ETFs may not go down in value as much as some of the individual companies that you were thinking of buying stocks in.