Hey teenagetraders! If you’re getting into the world of investing, one of the first things you need to understand is the different kinds of stock you can buy. Stocks represent ownership in a company, but not all stocks are created equal. Let’s break down the main types of stock and what they mean for you as an investor.

1. Common Stock

Common stock is the most popular type of stock that investors buy and sell. When people talk about "stocks" in general, they’re usually referring to common stock.

a. Ownership and Voting Rights

• Ownership: When you buy common stock, you own a piece of the company. If the company does well, your stock can increase in value, and you might receive dividends.

• Voting Rights: Common stockholders typically have the right to vote on important company decisions, like electing the board of directors. Each share usually equals one vote.

b. Dividends

• Potential for Dividends: While not guaranteed, common stockholders may receive dividends, which are payments made by the company out of its profits. However, dividends for common stockholders are usually lower compared to preferred stockholders.

c. Risk and Reward

• Higher Risk, Higher Reward: Common stock comes with higher risk because if the company goes bankrupt, common stockholders are the last to be paid out. But it also offers the potential for higher rewards if the company grows and the stock price increases.

2. Preferred Stock

Preferred stock is another type of stock that sits between common stock and bonds in terms of risk and return. It’s less common than common stock but has some unique features.

a. Fixed Dividends

• Guaranteed Dividends: Unlike common stock, preferred stock usually comes with a fixed dividend, which is paid out before any dividends are given to common stockholders. This makes preferred stock more like a bond in terms of steady income.

b. No Voting Rights

• Limited or No Voting Rights: Preferred stockholders generally don’t have voting rights, or if they do, their voting power is less than that of common stockholders.

c. Priority in Bankruptcy

• Higher Claim in Bankruptcy: If the company goes bankrupt, preferred stockholders have a higher claim on the company’s assets than common stockholders. This makes preferred stock less risky in that sense.

d. Convertibility

• Convertible Preferred Stock: Some preferred stocks can be converted into a certain number of common shares. This offers a mix of steady dividends with the potential for capital appreciation.

3. Class A and Class B Shares

Some companies issue different classes of common stock, such as Class A and Class B shares. The difference between these classes usually comes down to voting rights and dividends.

a. Voting Rights

• Class A Shares: Often come with more voting power. For example, one Class A share might give you 10 votes per share.

• Class B Shares: Typically offer fewer voting rights, such as one vote per share, but might be offered at a lower price.

b. Example

• Alphabet (Google’s Parent Company): Alphabet has Class A (GOOGL) and Class C (GOOG) shares. Class A shares come with voting rights, while Class C shares do not. Both types of shares are traded on the stock market, but they serve different purposes for different types of investors.

  Final Thoughts

  The differences between common and preferred stock are crucial to understanding how investors pick what stock to buy. Companies issue both to prefer to different kinds of investors, so its important to understand the types to understand what you should invest in.

  Keep exploring and stay informed, Your teenagetraders Team 📈💡