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Stock Classes for UK Investors

Stock Classes for UK Investors

For those in the UK that are still new to investing, there are many different types of assets that should be considered for investment. Should your money be focused on gold, oil, currencies, or stocks? These are complicated questions and the level of research that is involved here might seem daunting for those that have little experience in the world of finance. But if you are focused on stocks (as most investors are), it should be encouraging to hear that there are only a few broad classes of stocks that are generally used for traditional investment stances. Here, we will cover some of the basics so that UK investors are able to separate the good from the bad and to start making an entrance into the world of financial investing.

Small Cap Stocks vs. Large Cap Stocks

The first major distinction that needs to be made is that there are stocks that are designated as small in capitalization (more commonly referred to as the small caps) and those that are designated as large in capitalization (more commonly referred to as the large caps). “For the most part, small cap stocks are tied to companies most people have never heard about,” said Michael Carney, market analyst at TeachMeTrading.com. “Small cap stocks trade at very low values and are typically much more volatile when compared to their large cap counterparts.” This is an important distinction because this also shows that small cap stocks are usually much too risky for newer investors.

Large cap stocks, on the other hand, are associated with the largest companies in the world. These companies are household names and include well known companies like Royal Dutch Shell, AstraZeneca, Burberry, and Rolls Royce. Since these companies are so well established, there is much less risk involved when trading in this asset class.

The Stock Index

Last, we look at the stock index, which is a broad collection of stocks that are combined in a single unit. In the UK, the best example of this is the FTSE 100, which is a collection of 100 of the largest companies in the UK. The stock index is an asset that can be traded as a whole and there are some key advantages that can be captured when doing this. The most important advantage is the level of diversification that comes with owning a portion of 100 different companies. When this is accomplished, investors gain access to a number of different sectors, industry types and individual companies that have proven their ability to stand the test of time.

So no matter which type of asset you choose, it is always important to remember that there are several options available to you as a new investor. If you are looking for high rates of potential growth, small cap stocks might be the best option. If you are looking for access to individual companies that are well known and well established, large cap stocks might be your best choice. If you are looking for high levels of diversification, there is not better route than to take a look at the stock index (such as the FTSE 100).

This was posted in Bdaily's Members' News section by Richard Cox .