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Basics >> Different Types of Stock
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 isnt exactly a stock. It is a mix of a stock and
a bond. The owners 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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