Wouldn’t it be great? If you could see your income multiply while you sit back without working too hard. Well, it does sounds like ‘Just kidding’ but it’s really not. You could actually invest your money in stocks and see them grow and get you returns like no bank can ever give you. But before you start your exciting stock market investment journey do know the basics first:
What are stocks?
Ever wondered ‘what are stocks?’ and how you can possibly own them. Stocks are the shares of the ownership in a company, where you have invested your money. A stock represents an investor’s claim on a company’s assets and earnings where he/she has pump in money. As you own larger number of stocks, your ownership stake in the company increases. Now you must be wondering what does shares and equity means? Whether you say it stocks or equity or shares, it means all the same. The higher the number of stocks you own in a company, the higher would be your say in the company decisions.
Types of Stocks
Stocks are majorly of two types – Common or Preferred stocks.
Common stocks are the most common form of stocks that are available. In fact, majority of the stocks are issued in this form. Owners of common stocks get dividends on a part of the profits and carries ‘a voting right’ per share in selecting ‘Boards of Directors’. In case of bankruptcy, common stock holders are paid only after paying preferred stocks owners, bondholders and creditors. However, common stocks garner the highest yield in the long-term.
Preferred Stocks
Preferred stocks also referred as preferred shares, preference shares or preferreds which come with some degree of ownership in a company without voting privilege. This type of stocks are considered as hybrid because it can include properties of both a debt and an equity. In terms of ranking, it is placed above ‘Common stocks’ and below ‘Bonds’. Preferred stocks, are guaranteed a fixed dividends and generally paid higher dividends in comparison to common stocks. In case of liquidation, preferred shares are paid before paying common stocks holders. Preferred stocks are rated like bonds by major credit-rating agencies. It also has the flexibility of converting to common stocks. The preferred stocks are further divided into different types –
- Prior Preferred Stock
- Preference Preferred Stock
- Convertible Preferred Stock
- Cumulative Preferred Stock
- Exchangeable Preferred Stock
- Participating Preferred Stock
- Perpetual Preferred Stock
- Putable Preferred Stock
- Monthly Income Preferred Stock
- Non-cumulative Preferred Stock
If you are just placing your very first step in the Stock Market arena, ensure that you learn the basics and dos and don’ts from a Stock Market Professional to minimize your risks. Looking for a Stock Market Pro? Post your requirements here.
