There are two main types of stock investments, common and preferred. With common stock, you own shares directly in a company and benefit when the company grows and makes a profit. With preferred stock, you generally take less risk than common stock because the preferred stock dividends have priority over common stock dividends. Also, in a bankruptcy scenario, preferred stockholders have preference over the common stockholders. However the share prices of preferred stock tend to rise much more slowly than common stock and the dividend payments with preferred stock are generally more stable. One important risk to consider with preferred stock issuances is that they tend to have sensitivity to movements in interest rates.
While stocks have historically performed well over the long term, there’s no guarantee you’ll make money on a stock investment at any given point in time. Although a number of things can help you assess a stock, no one can predict exactly how a stock will perform in the future. Also, stock prices can change often and for many reasons. Therefore, it is very important that you carefully evaluate the risks involved in stock investing before adding stocks to your investment portfolio.