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.
Over the long term, common stock, by means of capital growth, yields higher returns than almost any other investment. If a company goes bankrupt and liquidates, the common shareholders will not receive money until the creditors, bondholders, and preferred shareholders are paid. Research stocks that fit within your strategy and invest in stocks that have the potential to help you meet your specific goals.
This represents some degree of ownership in a company, but usually doesn’t come with the same voting rights (this may vary depending on the company). With preferred shares, investors are usually guaranteed a fixed dividend forever. This is different than common stock, which has variable dividends that are never guaranteed.
Another advantage is that in the event of liquidation, preferred shareholders are paid off before the common shareholder (but still after debt holders). Preferred stock may also be callable, meaning that the company has the option to purchase the shares from shareholders at anytime for any reason (usually for a premium).
Some people consider preferred stock to be more like debt than equity. A good way to think of these kinds of shares, is to see them as being in between bonds and common shares.
Other Types of Stocks
Then of course you have large-cap, mid-cap, small-cap, domestic and international stocks, growth and value stocks, IPO stocks, dividend and non-dividend stocks, income stocks, cyclical and non-cyclical stocks, safe stocks, blue chip, and penny stocks.
Stock Market Sectors
Finally, types of stocks are then broken down by the business they’re in. The basic market sectors most often used include:
- Communication Services
- Consumer Discretionary
- Consumer Staples
- Real Estate
Deciding which stocks to invest in can be difficult, especially if you’re a socially-conscious investor or have a low tolerance for risk. You can research stocks that fit within your ESG (Economic, social, and governance) criteria, strategy, and invest in stocks that have the potential to help you meet your specific goals, whether you want investment growth, income, or a combination of the two. It’s important to define one’s financial goals and how much risk can be tolerated.
Fixed or fixed-indexed annuities may be an alternative investment option and should be considered for investors with a low risk tolerance as well as those that are risk adverse.
Researching stocks is not only prudent, but necessary. Click here to locate documents such as 10-K filings, Form 10-Qs, Form 8-Ks, and additional documents filed with the SEC.
Check out ShareInvestor for user friendly fundamental fact sheets and familiarize yourself with the company, industry, and industry peers of the company you’re researching.
CSIMarket is another great resource for information on publicly traded companies.
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Investing in securities involves risk of loss that clients should be prepared to bear.