There are two main types of stocks: common and preferred. Preferred stocks are used to get a higher rate of return on investment than common stocks. Preferred stocks have more benefits than common stocks, but they also come with greater risks.
1) Common Stocks:
Common stock is the most basic type of stock that a company can issue. It entitles the holder to vote at shareholder meetings, and it usually carries some dividend income as well. The majority of companies offer their shares as common stock, and so this is the type most people invest in when they purchase shares in a company through an exchange-traded fund or mutual fund.
2) Preferred Stocks:
Preferred Stock is a class of capital stock that has some extra privileges over Common Stockholders, but also comes with greater risk because it does not have voting rights or dividends like Common Stock does. The main difference between Preferred Stock and Common Stock is that the former has a preference for dividends and assets in the case of liquidation. Preferred Stock is best explained by the following example: In a company with 1000 shares of preferred stock and 5000 shares of common stock, the company would have a total value of $50,000,000. If it was liquidated and dividends were paid out on all assets (including preferred stock), then shareholders would receive $5 for each share of preferred stock that they owned ($60,000).
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