Did you ever find yourself stuck in confusion as to what you should be buying – common stocks or preferred stocks?
If the answer is a yes, then let me tell you, you’re not the only one here!
Here’s a fact! Literally every newbie is confused about what kind of stocks he or she should buy. Different investors try various tactics to gather information about where they should invest.
For example – some investors keep an eye on the list of stocks to watch out for! And here I’m with a quick and easy guide to select which stocks would give you more lucrative results and all the things that you need to know before making a decision.
Before we move on, let’s look at some of the most common points of difference between these two types of stocks.
First, all those who look forward to buying common stocks or preferred stocks are there to acquire ownership or a stake in the company. The reason why companies issue shares is because they want to raise funds for a project. For example, you could start with learning about trading micro-cap stocks and penny stocks, which are usually small public companies that trade at less than $5 per share.
This process gives an opportunity to interested people to buy stocks of a company. Owners of a common stock also get voting rights, and in some cases, they also get dividends.
Now if we talk about preferred stocks, they have most of the advantages as common stocks and moreover, they include some amazing characteristics of bonds too. Like the bonds, those who own preferred stocks of a company, get a particular amount of recurring dividend.
Both types of stocks give you ownership rights, but when it comes to voting rights, only common stock stockholders get it.
Likewise, if we talk about payment of dividend, the holders of common stocks get a fluctuating amount of payment that mostly depends on how the company is performing and is it generating any profit or not!
In most common cases, common stockholders are not entitled to any amount as payment of dividend if the company is not making profit.
Whereas preferred stockholders get a fixed amount dividend at specific intervals and these stockholders get priority at the time of dividend distribution, that means they are paid with dividend before anyone else in the company.
If a company is in a lucrative state and generating a good amount of revenue, all the stockholders, investors and board members are paid out in a certain order. In this order, the first ones to get paid are the bondholders of the company, secondly the preferred stockholders are paid and at last the common stockholders get paid.
In an unfortunate case of a firm going into bankruptcy, the preferred stockholders are given priority over common stockholders for the payment.
While keeping all that into consideration, now let’s look at the key points that you need to investigate at the time starting your stock market investment journey. The following points will be a treasure of information especially for the beginner level investors.
Don’t invest just because you think you know it all.
Most of the budding investors start things early because they think they are ready to face all the challenges that awaits them in stock investments. Things tend to move faster when you discuss things like stocks with your friends or someone from your family.
Your friends or family can manipulate your decision to invest in stocks and you may start feeling that investing in stocks is as easy as a walk on the cake. There are possibilities that you have no idea of the stock market, but you will end up investing because people around you made it look easy.
Don’t get carried away with the temptation of making big
At some point of life, all of us might have thought of becoming a billionaire by investing in the stock market. Well, some people have indeed made a fortune within this industry, but there are people who lost everything as well.
So, exceptions are always there and as a beginner, you must keep control over your investing habits. Always remember, don’t invest everything you have!
Learning every bit is essential
The thing that you need to do before making an investment, is to be aware of the small as well as big things of the market. Take your time, do your research, and understand the basics of the stock market before you jump in!
Get familiar with financial terms and metrics like ROE, EPS and PE, among many others. Research on the basic process and rules of trading. Invest first in understanding how inflation works and how it relates to the market.
Invest the extras only
As I said, never invest everything you have, so adding more to it, I would suggest that you just invest only the extras that you have. Make sure that you save a portion of your earnings first. Now from those savings, just take a small portion for the purpose of investing.
This way, in case of a loss, it will not hurt you much.
Emotions can be manipulative so beware
Don’t involve your emotions when investing in the marketing. Facts say that most of the new investors lose their money because they can’t control their emotions and invest more than their capabilities.
Also, make sure that you don’t invest in stocks that are unknown to you.
Conclusion
Investment in stocks can be tricky for beginners and for experts as well sometimes. You should always keep the above points in mind and study the difference between the different types of stocks.
By having proper knowledge about the market and stocks, you can minimize your risk of losing money and who knows? You might become a millionaire investor too!