The stock market involves two main kinds of stocks: common and preferred. These two types of stocks are the ones that can be availed by those who want to be stockowners. These two have differences in terms of the profit it can offer and the privileges that it can give to the owner as listed in the business documents.
The common stock, as the name states, is the frequently referred one when we say stock. Majority of the stocks are of this type. Common stocks give the owner a claim for a portion of the companys assets and profits. Also the owner of this type of stock has a one-vote-per-share privilege in the election of board members held annually in the company. Common stocks return a higher amount of profit because it is affected by the capital growth. This just compensates for the higher risk coupled with this kind of stock. On the other hand, preferred stocks offer the same privilege of claiming a portion of the companys profits. However, it does not offer the same voting rights as with common stocks. Also, preferred stocks involve a lower degree of risk. Investors are guaranteed of a fixed dividend perpetually.
Each type of stock has its own advantages and disadvantages. The risk may be the deciding factor. Common stocks or preferred stocks, the choice depends on the investor.
