Different Types of Stock
There are two main types of stocks:
- Common Stock
The most "common" form of stock ownership is issued in this form. Common shares represent ownership in a company and a claim (dividends) on a portion of profits. Investors get one vote per share to elect the board members, who oversee the major decisions made by management.
While common stock has historically generated higher returns (growth of principal plus dividend) than most other investments, it also comes with a high degree of risk to principal as shareholders will most likely lose their investment if the company goes bankrupt since common stock holders are last in line as a creditor.
- Preferred Stock
Preferred stock also represents ownership in a company but usually doesn’t come with the same voting rights. Unlike the dividends paid by common stock, which are not guaranteed, preferred stock most often has a guaranteed a fixed dividend. Preferred stock also differs from common stock in that preferred shareholders stand ahead of common stock holders in the creditor line. Often, preferred stock is considered to be a hybrid between stocks and bonds.
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