A stock represents a share in the ownership of a company. When you buy a stock, you’re buying a small piece of that company, which means you own a part of it. As a shareholder, you might benefit if the company does well because the value of your shares could go up, and sometimes you might get paid a portion of the company’s profits through dividends.
Types of Stocks
- Common Stock:
- Ownership and Voting: This is the most common type of stock. If you own common stock, you have a share in the company’s profits and losses and usually get to vote on company matters, like electing the board of directors.
- Dividends: If the company makes a profit and decides to pay dividends, common stockholders might receive them, though the amount isn’t guaranteed and can vary.
- Preferred Stock:
- Priority on Dividends: Preferred stockholders get paid dividends before common stockholders. These dividends are often fixed, meaning they don’t change much.
- Less Risk, Less Reward: Preferred stock is generally less risky than common stock but also offers less potential for big gains. It usually doesn’t come with voting rights.
- Payout in Liquidation: If the company goes bankrupt, preferred stockholders are paid before common stockholders but after debt holders.
In summary: Buying stocks means owning a part of a company. Common stock gives you voting rights and potential for higher returns but with more risk. Preferred stock offers more stable dividends and less risk but usually without voting rights.
