INVESTING 101 - COMMON / PREFERRED STOCKS?
After discovering and understanding what a stock is and how it functions, you might also find out that there are many different kinds of stocks! The main things you'd need to know is Common and Preferred stocks and how it affects us. 😁
Common Stock and Preferred stock
Common stocks are most commonly found in the markets as companies usually only issue common stock. Also what we refer to as stocks generally.
-Gives you voting rights in board meetings or elections, usually 1 vote per share.
-The right to receive a proportional share of the value of any remaining assets if the company gets dissolved priority coming after preferred stocks and bonds.
-A common stock gives you theoretically unlimited growth potential, but they also risk losing everything if the company fails without having any assets left over.
Preferred stock is a hybrid between common stocks and bonds.
-No voting rights
-If the company dissolves, you have a higher priority over common shareholders to get back a certain amount of money.
- Higher and fixed dividends
-Special feature: preferred shares also have a callability feature which gives the issuer the right to buy back the shares at a much higher price from you after a predetermined time.
Within common or preferred shares there are different share classes to note. Usually termed Class A and Class B shares.
For example, Facebook has a dual-class system where their Class A-shares have a 1 vote per share basis and their Class B that has 10 votes per share that allow Mark Zuckerburg to own 28% of Facebook’s stock but control more than 50% of all voting power. Which gives him control and retains that control.
In a nutshell,
If you’re more growth-oriented, common stocks might be a better option in your portfolio as it gives you unlimited growth potential
If you’re more income-oriented, preferred stocks might be better as it gives you a higher income than bonds and common stock
If you'd like to start investing and want to engage a trusted advisor, book a discovery call with me so we can find out your goals and what's the most appropriate solution!
Disclaimer: All investments have their own risks, please do your due diligence before making any decisions.