Investing in Stocks

There are two basic types of stocks that I will be talking about in this segment:

Preferred Stocks and Common Stocks

These are both bought and traded in the same way however they are different in a couple of fairly significant ways. First off preferred stock is a much less risky investment than common stocks. The reason for this is that they are guaranteed to be paid dividends from the company every year and second they are protected by being closer to the actual company, what this means is that if the company where to go under the holder of preferred stocks would be paid back what they could of their original investment. Basically they are one tear above the common shares meaning that they get their share of the pie before any money is paid out to common shares. This is an important safety feature for the investor because it gives them more reassurance in their investment as well as more security. Now going back to the start of the paragraph i would like to explain what dividends are, these are payments that stakeholders of a company receive from a company usually once per year. This money comes from the profit made by the company in the past year. The key difference between common stock and preferred stock is that companies are required to give these dividends to preferred stock holders and not to common stock holders. This essentially creates another level of income from the investment, which is always a positive. Both of these stocks are traded on stock exchanges around the world and money is usually made on these investment from buying the stock and allowing it to raise up. From there the investor can sell the stock at a higher price for a profit.

Stocks are the most volitile investment that you can make but they usually give the largest return, once again going back to the golden rule (the larger the risk the larger the return). As stated before the preferred stock is more protected and therefore the prices of these stocks fluctuate much less than common stock making their return smaller.

Hopefully this information is use full to everyone who is trying to get a better understanding of investing. If any readers have questions i encourage that you post a comment and i will get back to you as soon as possible.