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Should I Buy Common or Preferred Shares? What you Should Know

By Yunchao Zhang - Beverly Hills High School

A share of stock is a small piece of ownership in a public company, like Apple (Stock Ticker: AAPL) or Shake Shack (Stock Ticker: SHAK). Often, companies have different classes or levels of stock available, usually common and preferred stock. Read below to figure out how to sound smart on both, because well you can start investing now with companies like Robinhood, Acorns, or Etrade.

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Common Stock

Common stock, as its name suggests, is the most common type of stock companies issue, or sell to investors in exchange for money. Shareholders (owners in a company like you and me) of common stock are entitled to share in the profits and assets of a company. Most people who invest, buy common stock.

Preferred Stock

Preferred stockholders are basically one notch more important than common stockholders. In instances when a company decides to distribute money (called dividends) to its stockholders, preferred stockholders are paid before common stockholders. If a company, went out of business, you’d be better off as a preferred stock owner.

The Real Differences You Should Care About

Payouts. For companies that pay out dividends, preferred holders are generally paid more regularly.

Voting. Though both common stock and preferred stock represent a certain degree of ownership in a company, only investors with common stock can vote in the election of the board of directors or other issues put to a vote. How does this actually work? People who own stocks get mailings about when to vote on these issues. That’s right, if you start investing, you will too! Though don’t expect too much influence if you’re only buying a few shares, we’re talking in the millions here.

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If You Want to Start Investing, Which Should You Buy? 

The saying “the greater the risk, the greater the reward” remains true when participating in the stock market. Common stock is generally more volatile than preferred stock, but it provides a better chance for profit and a potential to return higher yields due to company growth and you have better voting rights.

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