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Different Types of Stock
Do you know what stocks or shares are? Do you know how to purchase stock and what advantages they offer to the investor?
Stocks or shares represent ownership in a company. When a private company decides to go public, it is offering a small part of its business to you to own. Of course, in most cases you will not have anything to do with the day to day running of the company or be involved in any of its operations or decision-making. What your shares give you is ownership in the firm. The more stock you have, the larger your share of the company.
If you own stocks in a company, you are referred to as a shareholder. Thousands of shareholders can own shares in one company. Or a small number of investors may hold large amounts of the shares and have a controlling interest in the firm.
There are two main classes of stock. The first type of stock is known as common stock. Common shares represent value in a company and a claim on future profits. Shareholders receive payments on the value of their stocks on an annual basis. These payments are known as dividends. If you own a common share, you are given one vote per share when it comes to electing board members that will run the company.
The other type of stock is preferred stock. This stock also represents ownership in a company but does not give the shareholder the right to vote. The dividend will also be a fixed amount each year and will not fluctuate like those of common stocks do.
Both preferred and common stocks have several advantages and disadvantages, which make them more or less desirable depending on the type of investor you are. For example, you may buy preferred shares because of the lower element of risk involved. You are guaranteed to be paid out before the owners of common shares if the company goes bankrupt for any reason. On the other hand, common stock will give you a higher return for your money and your dividends may be higher.
For more infomation on understanding the stock market choose from the list below. |
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Banking - Business Finances - Economics - Insurance - Investing
Major Purchases - Personal Finances - Stock Market - Taxes
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