(Prosperity)
Define: Stocks (and Types of Stocks)
There are two main types of stock:
Common Stock – this is what people usually mean when they talk about shares and stocks. It is ownership in a company, with rights to vote on the board of directors. Though most likely to be purchased, common stock has the lowest priority in the chance of liquidation, or bankruptcy – bondholders, preferred shareholders and other debt-holders are all paid first (in case you’re worried about liability, with stocks, you get ownership, but no liability if the company does go under).
Preferred Stock – As the name implies, this type of stock has a higher claim on the earnings and assets of a company, and usually have a dividend that must be paid out before those to common stock shareholders. These stocks generally do not, however, have voting rights.
Companies can customize shares into different classes, most often to protect voting rights – different classes may have different number of votes per share. These classes are denoted by alphabetical order.
Stocks can be traded at their value, or based on derivatives. A derivative is an equity security based on the underlying stock value.
Stocks offer a riskier investment option than bonds, with the greater chance for growth in your portfolio. The right combination of the two securities and a properly managed portfolio can make sure you have a chance to smell the tulips in the Hague (or at least Vancouver, which was gifted tulips by the Dutch royal family after World War II), well into your retirement.