Investing in stock at the most basic level is buying partial ownership of a company by taking the risk and investing hard earned money. Investing comes with the understanding that the return an investor will receive is dependent on the success or failure of a company. After a particular company is chosen there are many different roads an investor can take. Companies typically offer two different types of stock as well as two separate stock classes for investors to choose from.
Common stocks, unlike preferred stocks, are known as being the riskier investment of the two. They are normally investments made in publicly traded companies. The price of shares will reflect the investor demand as well as the state of the market. Purchasing common stocks opens you up to be able to have substantial gain or loss. There is no cap on the amount that a share can raise, but the price per share is directly related to the success of the company. If the company does go under, the investor stands to loose everything they invested as the stock price plummets. Common stock holders are the last to get paid back in the event that the company fails. With common stocks there can be dividends that are paid out depending on the company. These dividends are not required nor guaranteed.
This is a slightly less risky way to invest in the stock market and a company. Though with less risk comes less potential for reward. Preferred stocks on average guarantee dividend payments to their investors. Theses types of stocks are better for those investors who are investing mainly for income. They hold fixed dividend and their share prices don’t fluctuate as much as those of a common stock. Its common for an investor to get a return of any income that they make on top of the slight change in value. They also have the added protection bonus of being paid out before common stocks in the event that the company fails.
Classes of Stocks
When choosing to invest in publicly traded shares, there is often times different classes of stocks to choose from. Most of the time these stocks are labeled either A or B. The main difference between theses classes comes from either the restrictions on who can purchase the stocks and or what division they are coming from. The class difference can be derived from an established company breaking apart its divisions when it acquires a formerly established independent company into its corporate fold. The more common distinction between the two classes is that one class is publicly traded while the other it not traded at all. The publicly traded class can be those that are just common stocks traded on the market. The non traded class is limited to those who are founders or corporate managers of the company. These types of stocks tend to have stockholder voting power as well as trade restrictions. They are commonly known to have super voting power, in which a particular investor can own less that the total shares but still have the control of the outcomes of shareholder votes.
Purchasing a bond is another road an investor can go down when choosing to invest in a particular company. It is a form of indebtedness of the bond issuer to the bondholder. This is when a particular investor has the ability to purchase a bond in a company with the understanding that the company then pays interest to repay the principle at the bonds maturity date. The interest is normally paid to the investor in fixed intervals weather they be annually, semi-annually or monthly.
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