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The different types of stock are what confuse most first time
investors. That confusion causes people to turn away from the
stock market altogether, or to make unwise investments. If you are
going to play the stock market, you must know what types of stock
are available and what it all means!
Common Stock is a term that you will hear quite often. Anyone can
purchase common stock, regardless of age, income, age, or
financial standing. Common stock is essentially part ownership in
the business you are investing in. As the company grows and earns
money, the value of your stock rises. On the other hand, if the
company does poorly or goes bankrupt, the value of your stock
falls. Common stock holders do not participate in the day to day
operations of a business, but they do have the power to elect the
board of directors.
Along with common stock, there are also different classes of
stock. The different classes of stock in one company are often
called Class A and Class B. The first class, class A, essentially
gives the stock owner more votes per share of stock than the
owners of class B stock. The ability to create different classes
of stock in a corporation has existed since 1987. Many investors
avoid stock that has more than one class, and stocks that have
more than one class are not called common stock.
The most upscale type of stock is of course Preferred Stock.
Preferred stock isn’t exactly a stock. It is a mix of a stock and
a bond. The owner’s of preferred stock can lay claim to the assets
of the company in the case of bankruptcy, and preferred stock
holders get the proceeds of the profits from a company before the
common stock owners. If you think that you may prefer this
preferred stock, be aware that the company typically has the right
to buy the stock back from the stock owner and stop paying
dividends.
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