Stocks

What is stock?

A stock is a general term used to describe the ownership certificates of any company.

What is Share?

          A share, on the other hand, refers to the stock certificate of a particular company. Holding a particular company's share makes you a shareholder.

Types:

1.       Common shares

2.       preferred shares

What is common stock?

Common stock is what most people think of when they think "stock." Common stock allows its holders to make a profit through rising share prices and dividend payments. Holders of common stock also get to vote on corporate issues, such as electing new directors to the corporation's board. However, should the company end up in bankruptcy, holders of common stock are last on the list to get their money back -- after regular creditors, bondholders, and holders of preferred stock. If you hold common stock and the company goes bust, you are unlikely to get any of your capital back.

What is preferred stock?

Preferred stock also represents owning a share of the company, but it works a bit differently than common stock. Preferred stock pays a predetermined dividend, whereas the dividends paid to common shareholders tend to vary according to the company's fortunes. Dividends on preferred stock are often larger than those on either common stock or the company's bonds. Holders of preferred stock do not get a vote on company matters. And if a company's assets are liquidated, the preferred stockholders get to redeem their shares before common stockholders do, giving them a better chance of getting at least some of their money back. 

Which is better?

For most investors, common stock is a better deal. It's slightly riskier than preferred stock, but will usually show a slightly higher return as well. If you want to enjoy the potentially high returns of a stock investment but want to minimize your investment's volatility or your exposure to company-specific risk, preferred stock might be a better choice. Preferred stock may also be better if you're looking for a source of income you can depend on, as the dividends paid on such stock are fixed. But whichever class of stock you choose, be sure that it's an investment you'll feel comfortable holding over the long haul.