Many times investors become confused over the different stock types. This confusion contributes many people to avoid the stock market all together. It’s also a cause of some making bad investments. If you want to play the stock market, you need to learn the types of stock and what they all mean.
Common stock is what you’ve probably heard of many times. Anybody can buy common stock, regardless of age, financial standing, or income. Common stock is basically “part ownership” of the business you’re buying stock for. As the business grows and begins earning money, your stock value will rise. Likewise, if the business performs poorly or files bankruptcy, your stock value falls. Holders of common stock don’t participate in the daily operations of the business, but they are allowed to have a say in the board of directors election.
In addition to common stock, you must also learn about classes of stock. A company has Class A stock and Class B stock. Class A basically gives the owners of the stock more power and votes per share than the Class B stock owners. These different stock options have been available for two decades now. Companies have been offering these two classes of stock options since 1987. Many investors tend to avoid stock if it has more than one class, as they are not common stock.
Preferred stock is considered the “most upscale” type. Preferred stock is basically a mixture of a stock and a bond. An owner’s preferred stock receives proceeds of profits from companies before the common stock holders do. If you’re interested in preferred stock, you need to realize that the business has a right to purchase the stock back from you and they can stop paying dividends.
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