Understanding Stocks as a Retirement Investment Vehicle
Estimated reading time: 3 minutes
1) Common Stocks
Common stocks are issued certificates of ownership to investors. The value of the certificate grows in-line with the growth of the company. The decline of the investment is also in-line with the decline of a company. Each individual investor has voting rights regarding matters company matters.
The company may choose not to pay for common stocks, or even pay dividends to common stock holders. If the company fails, common stock holders are the last to get paid in comparison to bonds and preferred stock holders.
2) Preferred Stocks
Preferred stocks are issued certificates of ownership to investors that have guaranteed dividend payments to the investor (usually based on a certain percentage). Most often, preferred stocks are considered a fixed investment vehicle due to the guaranteed dividend. Most companies only issue a small percentage of this investment class to investors.
With the characteristics of company ownership and guaranteed dividends, an industry description of this type of stock is a hybrid stock, comparable to a bond and common stock. One main difference between common stocks and preferred stocks is voting rights. Preferred stock holders do not have voting rights, and their stock can eventually be converted into common stock shares at a prearranged price.
Also, if the preferred stock holder decides to sell the preferred stock shares, the company may buy back the shares. With the guaranteed dividends paid by preferred stocks, investment appreciation appears higher in comparison to common stock.
Entrust does not provide tax and advice. It is highly recommended to seek the assistance of a tax or legal advisor before entering into any investment transaction.