Sooner or later every company needs several ways to raise money to fund production or services or to open a new office, factory or hire more people. In that case, companies either borrow money or raise money by actually selling stocks to various investors. As soon as you own a share of stock, you are the owner of a part of the company and have a claim on every asset and every dollar the company earns from there on.
Stock buyers though do not think of stock buying as owning part of the company since they can rarely express an opinion on what’s done within the company. Despite that though, the stock still gets its value from the fact that it gives ownership rights to the stock owner. If the stock owners didn’t have any rights in what a company earns then the certificates for stocks would be nothing more than just a piece of paper. So it is only logical that, as a company’s income increases, more and more investors are engaging in paying for a stock.
Time and Stocks
Throughout time, stocks have become a quite solid investment for anyone. With the growth of the economy over time and the amounts corporations earn, stock prices have also risen. It’s since 1926 that the average large stock has come back to 10% a year. If you are for example saving money for your retirement days later, then buying a stock is a perfect choice. It is, of course, possible that a company doesn’t do well over time and thus the company’s shares will drop in value as well.
It’s a perfect choice as a long-term money-saving choice even though it’s also a risk at the same time. That’s why you should do your research well before buying stocks to make sure you are doing it when a company is doing well.
Types Of Stock
The common stock is as anyone would describe it, the most common when it comes to categorizing stocks. Most of the times you would hear someone talking about stocks; they are probably referring to the common stock. The common stock share is proof of ownership in a company and claim on a portion of the company’s profits. Stockholders also get one vote per every share they possess during various elections, most notably board member election, and thus have an impact on the management of a company through it.
It is through the riskiest of stocks to invest money in since if a company goes bankrupt or liquidates, the shareholders will not be receiving any money until the company has paid off its debts.
The preferred stock, unlike the common stock, offers partial ownership in a company and most of the times doesn’t give voting rights to the shareholder. This, of course, differs from one company to another, and the benefit of having a preferred stock is that you will have a fixed dividend forever.
Favorite shares can also be callable, depending on each company again, and can thus be repurchased from the shareholders at any time for any particular reason. It is generally considered that preferred stocks are more of a debt than equity. They are something in the middle of bonds and common stocks.
Different Classes of Stock
Even though common and preferred are the two main categories that stocks are put into, many companies put their stocks into sub-categories as well. The reason for doing so is most of the times the fact that a company might want the voting power to be only for a certain amount of people. So, these sub-categories separate the stocks that give the shareholder voting power from the ones that don’t.