Preferred stock is very different from common stock. It's closer to a bond, with a redemption price, a set dividend, and usually a redemption date (meaning the company will repay investors the redemption value plus dividends owed).
Preferred shares tend to hold up their value, but they have very limited upside. The upside is usually a higher dividend yield than common stock in the same company, with less volatility and a smaller risk of losses.
Pros and cons of stocks
Pros
- Upside potential is only limited by a company's ability to increase earnings per share.
- They are easily accessible to anyone with some disposable income.
- They have a long track record as a reliable long-term wealth generator.
Cons
- There is a risk of permanent losses if a company struggles or fails.
- Volatility increases losses if held for only short periods of time.
- Market swings can make it emotionally difficult to hold through stock downturns.
How do I buy stocks?
Buying stocks has never been easier, with a wide range of reputable online brokers offering low-cost (or no-cost) trades and different kinds of accounts, depending on your needs. Many brokers also offer zero-commission trading, as well as fractional investing, which allows you to buy less than one full share of a company's stock.
What are bonds?
While stocks are ownership in a company, bonds are loans to a company or government. Because bonds are loans with a set interest payment, a maturity date, and a face value the borrower will repay, they tend to be far less volatile than stocks.
That's not to say they're risk-free. Bonds can lose value if the borrower has financial trouble and is at risk of defaulting on their debt. But even in a worst-case scenario of bankruptcy liquidation, bondholders are ahead of other creditors and shareholders when it comes to getting repaid.
Bond prices can also rise and fall inversely with interest rates. If you sell a bond on the secondary market before it matures, it may sell for a loss if interest rates have gone up.
