Overview

When you purchase a share of stock, you are buying ownership or equity in a company. Once you own at least one share, you become a shareholder or stockholder. When you buy stock, your ownership interest entitles you to any dividends distributed. Plus, there is the possibility that your shares will appreciate in value. You also face the risk that your stock will go down in value.

There are two types of stock:

• Common stock
• Preferred stock

Preferred stock appeals more to older investors who are looking for income, because each share usually pays a specific dividend. Preferred stockholders will usually receive their dividends, even if owners of common stock aren’t receiving theirs. If you own preferred stock, you also receive preferential treatment if the company becomes insolvent and declares bankruptcy.

Owners of common stock are allowed to vote on important matters affecting the corporation. Owners of preferred stock, however, usually aren’t entitled to voting rights.

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