Common Stock vs Preferred Stock Reviews
During the “setting up” phase of a corporation, people have an option to set up different classes of stock. Many large companies offer about 10 to 12 different classes of stock. However, common stocks and preferred stock stood tall against rest in terms of popularity. So how do they compare when pitched against each other? It’s Common Stock vs Preferred Stock.
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Common Stock vs Preferred Stock
What are Common Stocks?
Common stocks are the ones which people usually refer as “stock” in the stock market. It enables its holders to earn profits through soaring share prices and dividend payment. Common stockholders also hold voting rights on various important company matters like electing new directors for the company’s board. However, if the company somehow ends up in bankruptcy, common stockholders are the last people to receive their money back. This is after creditors, bondholders and preferred stockholders.
So, why people buy common stocks? Well, its due to the fact that as a common stockholder you make profit through rise in stock price due to the company’s growth. And the company pays you through dividends. However, the payout through dividends vary over time. Thus, it makes it difficult to predict the cash flow. You can even put your money in a Money Market Account, as it offers some really high interest rates. But before putting up your money there, you need to What Are Money Market Account Advantages And Disadvantages?
What are Preferred Stocks?
While preferred stocks also represent owning a share of the company, its working is different than that of the common stock. Unlike common stockholders, preferred stockholders get a predetermined dividend. These dividends are greater in amount than that of bonds and common stocks. You can use this steady income to have a good retirement plan. Check out the different types of Retirement Plans before opting one. However, preferred stockholders do not get any voting rights on company matters. They are second on the list when it comes to giving priority to shareholders during company’s asset liquidation. This is way ahead of common stockholders.
So, What’s The Conclusion?
It’s easy to see why a lot of investors prefer common stocks. They grow faster and voting rights are great value boosters. Preferred stocks, on the other hand, give you potentially high returns and minimize the volatility of your investments or exposure to the company-related risks. Moreover, the dividend payments on preferred stocks are fixed, making it a reliable source of income. Check this out to learn How To Buy Preferred Stock? So, in the end, it’s your choice. You can even save some money for short-term investments. Here are The 7 Best Short-Term Investment Plans For You! The ball is in your court!