Types of Stocks: Understanding the Different Categories
Investing in the stock market has historically been one of the most important pathways to financial success. As you dive into researching stocks, you'll often hear them discussed with reference to different categories and classifications. Here are the major types of stocks you should know.
Most stock that people invest in is common stock. Common stock represents partial ownership in a company, with shareholders getting the right to receive a proportional share of the value of any remaining assets if the company gets dissolved. Common stock gives shareholders theoretically unlimited upside potential, but they also risk losing everything if the company fails without having any assets left over.
Preferred stock works differently, as it gives shareholders a preference over common shareholders to get back a certain amount of money if the company dissolves. Preferred shareholders also have the right to receive dividend payments before common shareholders do. The net result is that preferred stock as an investment often more closely resembles fixed-income bond investments than regular common stock. Often, a company will offer only common stock, and trading in common shares tends to have much higher volumes than preferred share trading.
Source Fool.com
