What are the different types of stocks?

There are thousands of stocks to choose from, so investors usually like to put stocks into different categories: size, style and sector. Thinking of stocks this way helps you diversify - that is, to choose several stocks that are different enough from each other that they won't all tank at the same time. (Ideally, at least.)

By size. A company's size refers to its market capitalization, which is the current share price times the total number of shares outstanding. It's how much investors think the whole company is worth. Companies are typically referred to as either "small-cap," "mid-cap" or "large-cap." Large-cap companies (those with market capitalizations in the tens of billions of dollars) tend to have more stable stock prices than small caps, so they're less risky. But small caps usually have higher growth potential.

By style. There are two major styles: growth and value. A growth stock is issued by a company that is expanding at an above-average rate. Catch a successful growth stock early on, and the ride can be spectacular. But the greater the potential, the bigger the risk. Growth stocks race higher when times are good, but as soon as growth slows, those stocks can tank.

A value stock tends to be slower and steadier, with strong fundamentals. In general, it trades at a lower-than-average earnings multiple than the overall market. A value investor might think the underlying business is still sound and that its true worth isn't yet reflected in the stock price.

By sector. Standard & Poor's, a well-known data provider, breaks stocks into 10 sectors and dozens of industries. Generally speaking, different sectors are affected by different things. So at any given time, some are doing well while others are not.

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