Looking for another way to invest and expand your portfolio this year? Maybe you’ve got a portfolio full of mutual funds and you’re ready to tackle some company stocks. But when it comes to choosing common stock vs preferred, which is better?
Before we dive in, let’s get back to investing basics: what is a preferred stock?
What Is Preferred Stock?
Preferred stock is a type of stock that allows you to have a piece of ownership in a company while taking on less risk than you would if you owned common stock. You could say a preferred stock is the perfect mix between common stock and a bond. Not only is it less risky than investing in common stock, it also pays out regular dividends and gives you ownership of the company.
But while preferred stock can be a better option than bonds for profitability, it does have its downsides. If a company goes bankrupt, bondholders are the first to get paid (before preferred stockholders). And sometimes, if the company’s money is tied up, preferred stockholders may not get paid at all.
Most people who like the idea of investing with the potential for growth and regular dividend payments love investing their money in preferred stock. It’s definitely less risky than investing in common stock options, but it has the ability to make you more money than purchasing company bonds.
What is Common Stock?
Common stock is a type of stock that provides investors ownership of a company, dividend pay-outs, voting rights, and the ability to capitalize on your initial investment.
While common stock is what you see being traded on the stock market (and whose values can vary day by day), a bond is less volatile and ensures that its owners receive their investment—plus interest—after the maturation period.1
Common Stock vs Preferred Stock
If you’re considering investing this year, common stock and preferred stock are both great options. But what’s better?
Both common stock and preferred stock give you the opportunity for ownership in the company of your choosing. And like we said earlier, common stocks are more volatile than preferred. When you invest in common stocks, you’re choosing to ride the waves (both high and low) of the daily stock market. When the company is doing well, you’ll do well too. And the same goes for preferred stocks. But choosing preferred stocks is the safer investment option. The only risk with investing in preferred stock vs common stock is that you’re not going to be making as much as you could with common stock. But you’re also not going to lose as much if the company doesn’t do well.
The best plan of action when it comes to investing and choosing stocks that help you meet your long-term financial goals is to differentiate your portfolio with both common and preferred stock options. A SageSpring wealth advisor is here to help you determine the best plan of action for your investing and financial needs. Get connected with a local advisor today and start investing in your financial future with a team you can trust.
Any opinions are those of SageSpring Wealth Partners and not necessarily those of Raymond James. This information is intended to be educational and is not tailored to the investment needs of any specific investor. The information contained herein does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. You should discuss any tax or legal matters with the appropriate professional.
