These are the two types of shares traded by businesses and sold to investors in an open market. The shareholder is allowed limited possession of the corporation as signified by the amount of stock they purchase. Companies mostly issue common stock. The shareholder is entitled to returns through investment increases and dividends. The common stocks allow investors to vote, determined by shares owned (Wilson, 2018). Preferred stock is less unpredictable when compared to common stock, with a reduced potential of making profits. The owners of the shares do not claim the assets of the company, and they cannot participate in the voting process in preferred stock.
In common stock, the main risk is associated with possible loss of projected profits and money for shares if the price of the stock were to drop below the original cost. Common stocks have a higher risk that preferred risk since the shareholders get paid last in case of bankruptcy. In case of bankruptcy, the preferred shares get a better claim on payment. The preferred stocks are affected by interest rates easily; therefore, when the interest rates are low, the returns on shares is also low. The risk of business failure leads to total loss in common stocks, which may happen due to poor decision making through the voting system.
Delegate your assignment to our experts and they will do the rest.
Common stock is my best preference. It offers the advantage of high earning potential since I will be sharing in the dividends, and the returns will be based on the amount I will have invested. However, I would first choose the company to make sure that its operations have been successful. The history of performance will guide on possible profits or losses likely to be experienced. The best company will be investing with limited liability (Wilson, 2018). It will reduce the chances of risk, since my liability will be limited on my investment amount, thus reducing my losses.
Reference
Wilson, L. T. (2018). Liquidity and Private Placement Discounts in the TARP Preferred Stock Auctions. Business Valuation Review , 37 (2), 56-63.
