The Potential Rewards of Stocks

Stocks carry higher investment risks than bonds or money market investments, but they also have historically realized higher rates of return over longer holding periods (see chart). While past performance doesn’t guarantee future results, the higher return potential of stocks can make them suitable investments for long-term investors seeking to build the value of their portfolios or to stay ahead of inflation. Both of these objectives are critical to investors with specific long-term goals in mind, such as saving for retirement.

Ways of Categorizing Stock Investments
 
Size of Company
 The market value (capitalization) of the company determines whether it is considered a large-, mid-, or
small-cap stock.
 
Growth
 Stocks of companies that are forecasted to increase earnings by 15% or more per year. Of course, there is no guarantee that this objective will be met.
 
Value
 Stocks of companies that are priced near their asset value (with no growth in earnings assumed) are called value stocks. They may or may not be bargains, however, depending on whether their prices subsequently recover.
 
International
 Stocks of companies headquartered outside the United States in industrialized countries.
 
Emerging Market
 Stocks of companies headquartered in underdeveloped, fast-growing countries.
 
Industry Sector
 Type of industry, such as technology, energy, or cyclicals.