With 2025 around the corner, it’s a good time to shake up your financial strategy and turn those savings into growth opportunities, if you haven’t done so already. If you’ve been stacking up cash in a bank account, it might be time to give those funds a purpose and put them to work. Savings accounts, which often yield around 1 per cent interest, struggle to keep up with inflation, meaning that over time, the real value of your money decreases. While your bank account is essential for managing daily expenses and setting aside emergency funds, it is definitely not the best option for meeting your long-term goals and creating wealth. To make the most of your hard-earned money, consider investing some of your funds into assets that offer greater growth potential. By strategically investing, you allow your money to work harder for you and boost your chances of building wealth faster.

One of the smartest financial decisions you can make as you wrap up the year is investing in stocks, particularly in companies listed on a stock exchange. This step can put your savings to work, helping you build financial security. So, if you’re considering buying stocks with money from your savings this holiday season or from an expected bonus, here are two major types of stock that you can consider adding to your portfolio and watch your money work even harder for 2025 and beyond!

What exactly are stocks?

Stocks are small ‘pieces’ of ownership of a company, giving shareholders a claim on the company’s earnings and assets. When you buy stocks, you’re buying into a business; as such, stockholders are partial owners of the company. When the value of the business rises or falls, so does the value of the stock. Stocks are also called shares or equities. For the most part, they vary between two types – common and preferred. Common stock is the “average Joe” of equity. It’s the public and private stock type you’re most likely to buy and sell, while preferred stocks are like a mix between a common stock and a bond. The difference is that common shareholders have voting rights that can be exercised in corporate decisions, such as deliberating on corporate actions and policies and assessing the company’s financial statements. In contrast, preferred stocks are hybrid investments that share characteristics of both stocks and bonds. They can offer higher yields than many traditional fixed-income investments, but they come with different risks and rewards. Dividends are typically higher and fixed, and the share price experiences less volatility compared to common stock. Preferred shareholders are more likely to recover at least part of their investment if the company goes bankrupt. However, there is lower long-term growth potential, if any. Preferred shareholders typically do not have voting rights, and they are generally less liquid than common stocks.

Both types give you a stake in the company’s performance and allow you to make money through capital gains or dividends. Once you participate in the company’s success, if the company is doing well, its stock price will go up in value. If you sell your stock for more than what you paid, you will receive a positive return on your investment. This is called a capital gain. Higher returns help grow your wealth, and can also offset the impact of inflation, which can erode the value of your investments over time. Alternatively, some companies may decide to share a portion of their profits with investors through periodic cash payments called dividends. Companies may pay dividends quarterly, semi-annually, annually, or none at all depending on their goals and financial situation.

Types of Stocks to Consider

Different types of stocks suit different investment goals:

Growth stocks are those companies that are growing at a faster pace than their competitors or the overall market. In other words, growth stocks represent companies that have demonstrated better-than-average earnings growth in recent years and that are expected to continue delivering high levels of profit growth, although there are no guarantees. Examples of growth stocks are Dolla Financial Services, Honey Bun, or FESCO, which have certain characteristics such as:

•High earnings growth records and prospects — growth companies typically have a record of faster earnings growth and are expected to continue to achieve high earnings growth into the future, sometimes regardless of economic conditions. This is because growth stocks carry relatively lesser risk because their growth rate is high and increasing. They are relatively less sensitive to adverse economic conditions than the overall market.

•Higher priced than broader market — Growth stocks are seen as overpriced relative to their intrinsic value because investors are willing to pay high price to earnings multiples with the expectation of selling them at even higher prices as the companies continue to grow.

•Low or zero dividends — Growth stocks usually pay either low dividends or no dividends. This is because they are growing at a very fast pace, and typically want to reinvest their retained earnings back into the company to boost the revenue-generating capacity of the business.

Value stocks are those companies that are currently trading below what they are really worth (that is their intrinsic value). Many investors believe that the market overreacts to any news, resulting in stock price changes, which do not accurately depict the strength of the underlying fundamentals of the company. Hence, they trade below their intrinsic value based on fundamentals, like price to earnings, earnings per shares or, price to book value, and will thus provide a superior return. These companies are often well-established, but temporarily undervalued by the market due to external factors. This creates an opportunity for investors to buy at a discount and potentially benefit if the market corrects its mispricing. Examples of value stocks NCB Financial Group, GraceKennedy, Kingston Wharves, and Massy Holdings, which have certain characteristics such as:

•Lower priced than broader market — Value stocks are often seen as underpriced compared to their intrinsic value. Consequently, they tend to trade at a lower price relative to their fundamentals (including dividends, earnings, and sales) because they are seen as undervalued. Value stocks generally have good fundamentals, but they may have fallen out of favour in the market and are considered bargain priced compared with their competitors. They may have prices that are below the stocks’ historic levels or may be new companies that aren’t recognised by investors. It’s possible that these companies have been affected by a problem that raises some concerns about their long-term prospects. The idea behind value investing is that stocks of good companies will bounce back in time, if and when, the true value is recognised by other investors.

•Higher dividend payouts — Unlike growth stocks, value stocks often have higher than average dividend yields as they are often matured companies that focus on stability and don’t need to reinvest as much of their profits in their businesses. Overtime they deliver consistent earnings and can afford to return cash to shareholders. Consequently, value stocks are considered reliable dividend stocks in the market boasting higher dividend payouts relative to growth stocks

Bottom line

As Warren Buffett wisely put it, “Investing is the process of laying out money now to receive more in the future.” With the new year fast approaching, now is an ideal time to let your savings or at least a part of it do more than sit in a low-interest account. Whether you’re looking for growth through capital gains or steady income from dividends, the stock market offers opportunities for everyone. Don’t wait for the perfect moment; the best time to start investing is now. Speak with an NCBCM wealth advisor who can help to determine your risk profile and which stocks whether value, growth, or a blend of the two are best suited for you. Remember, the earlier you start, the more time your money has to grow. In the next part of this series, we’ll discuss the risk-reward trade-off and how to confidently navigate the stock market, even if you’re just starting out. Let’s make 2025 the year you take charge of your financial future!