In a corporation, there are securities that will allow you to acquire equity ownership which include common stocks. When you become a common stocks holder, you will be allowed to have rights to vote and share the dividends and capital appreciation of the company. However, you will only be part of the bottom priority ladder being a mere investor. Hence, it is a lot riskier in comparison to debt shares or preferred stocks. Nevertheless, it can perform better over time which is a huge advantage. Here are some pros and cons of common stocks to help you decide whether or not you are going to consider this option.
List of Pros of Common Stocks
1. Huge Gain Yields
This option should be able to outperform bonds and other investment products. Common stocks should have no limits regarding the money you will gain. Despite the fact that there will always be the risk of losing, you will be guaranteed of earning big.
2. Ideal Investment Option
Using this type of investment, you will be allowed to invest having limited liability. So whatever amount that you have already invested partially will be the only investment that you are going to lose when they will be liquidated. Thus, you will not risk to lose money in excess of the total funds invested.
3. Restricted Legal Liabilities
Having a limited liability in a company, you will not be affected if there are problems arising from the outside of the financial investment of a stockholder. Only those who are running the company are at risk of facing the consequences.
4. Easy Purchase and Sale
As it is a liquid investment, there is always a possibility to sell a portion of that stock any time you want. This is even more possible if you want to increase your stocks. The good thing is that you will be able to purchase at very fair prices.
List of Cons of Common Stocks
1. Investment with High Risk
Investment is always connected to risks in which most of them are linked to common stocks. Basically, they have volatile prices that fluctuate erroneously. Thus, you will end up losing a lot more if you are the kind of person who panics every time the prices will go down and decide to sell some stocks.
2. Inability to Control
Purchasing some stocks from a company is tricky. This is because your success will be dependent on how the business is able to manage its practices and strategies. Since you have a limited view of their books, you will have to do your own research.
3. Get Paid Last
You will only get paid once all the other stockholders will get their shares. As you only reside at the bottom priority ladder, you can only hope that you can get your own after the creditors, employees, and suppliers get theirs.
After learning a few things about common stocks, perhaps you can have an informed decision regarding this matter. After all, you should have the right to choose the type of investment that you would consider worth every penny.
Brandon Miller has a B.A. from the University of Texas at Austin. He is a seasoned writer who has written over one hundred articles, which have been read by over 500,000 people. If you have any comments or concerns about this blog post, then please contact the Green Garage team here.