What is the difference between preferred stock and common stock?
Many companies issue 2 different types of stocks: common stocks and preferred stocks. Common is not a derogatory term as one might think. Rather, common stock just means that it is the standard stock that the company issues. Likewise, the name “preferred” does not mean that these shares are better, but rather it offers investors privileges and rights different from those offered by common stock. The main differences between the two are the levels of risk and privileges involved. The decision whether to invest in common shares or preferred shares is based on each individual’s personal preferences and risk tolerance.
What is common stock?
Common stocks, also referred to as voting shares or ordinary shares, are considered to be more risky and speculative than preferred stocks because they are last to receive the company’s assets. This means that if a company goes bankrupt, the common stockholders receive whatever assets are left after creditors, bondholders, and preferred stockholders have been paid in full. Common stock shareholders are also last to receive any interest and dividends. Continue reading