Understanding the different types of equity investment instruments available will help an investor realize all possible options for stock investing. The equity market is a risk-filled, volatile arena. It has yielded huge earnings for both lucky and wise equity investors, and has helped to sustain businesses. It has also crushed people's financial dreams. Whether buying preferred stock, common stock, or warrants, there are benefits and costs involved with each.
Buying Preferred Stock
Buying preferred stock has many financial benefits. It is not quite as risky as buying common stock, and entitles the holder to regular dividend payments. These dividends are an integral part of the investment, independent of the market. Their inherent nature is somewhat similar to a bond; they could even be considered a hybrid investment instrument of corporate bonds and common stock shares. Preferred shares are a more stable investment like a bond, promising regular revenue, and they come with a greater claim to assets than common shares in the case of bankruptcy. Owners of this type of equity investment do not have a say in company decisions.
When buying preferred stock, there are different types to choose from. Convertible preferred stock can be turned into common stock at a predetermined price. Participating preferred shares will receive higher dividend rates when and if common stock dividends are of a greater value. Adjustable-rate shares have a floating dividend rate, depending on interest rates.
