1) STOCKS 📈

Stocks symbolise an investor's ownership in a company. Based on the number of stocks the investor bought from the corporation, they will be entitled to a percentage of a company's assets and profits. A specific number of stocks combined together will make a share. 

• E.g. if Manchester United F.C. owns 10 Million shares, and you own 1 million of it, you thus have a claim to 10% of the company's assets

However, a shareholder does not own the company or their assets per say.  For example, if a company own 10 office tables, the shareholder will not own them physically. Rather, they own a portion of the shares a company gives out, which generates profits, whether through increased stock prices or dividends. 

Common Stock and Preferred Stocks

There are two main types of stocks: common and preferred. Both have their benefits and drawbacks that would appeal to different kinds of investors

Common Stocks: The "traditional" kind of stocks, the ones you would think about when you hear the word "stocks"

• Advantages

  1. Gives voting rights to investors

  2. Stocks can appreciate in value, allowing investors to sell them for profit, with more potential to earn more in the long run compared to preferred stocks

• Drawbacks

  1. More volatile and risky, with the potential to lose all your money based on stock prices

  2. In case of company bankruptcy, you have the least priority in claiming assets

Preferred Stocks: A stock that pays a fixed income, known as "dividends", to shareholders, based on a percentage of the stock price

• Advantages

  1. Less volatile, with dividends that provide something like a stable income

  2. In case of bankruptcy, preferred stockholders have more priority in receiving liquidated company assets or property to replace their losses, compared to common stockholders

• Drawbacks

  1. Less potential for earning more money in the long run, unable to increase much in value as dividend payouts never increase by much

  2. Not fully safe, as corporations can default on preferred stocks if profits are low. 

     • Depending on the type of preferred stock, the company may or may not have to pay back on defaulted payments

  3. Little voting rights in company matters

References

1. Kaitlyn Koterbski, "Preferred vs. common stocks: Comparing the two—and deciding which is best for your portfolio", Fortune RecommendsTM, last modified December 2022. https://fortune.com/recommends/investing/preferred-stock-vs-common-stock/

2. Adam Hayes, "Stocks: What They Are, Main Types, How They Differ From Bonds", Investopedia, last modified April 2023. https://www.investopedia.com/terms/s/stock.asp