Can you convert common stock to preferred stock?

Certain preferred stocks are designated as convertible preferred stock, which means that you can choose to convert preferred shares to common shares at a predetermined exchange rate. But this doesn't work both ways -- common stocks are not convertible to preferred stocks.

What is the expected return on a common stock?

Overall, the stock market has generated annualized returns in the 9% to 10% range over long time periods, so this is a reasonable expectation if you hold a stock for many years. However, stocks can be incredibly volatile over the short term, and returns can vary dramatically from stock to stock, so keep this in mind before investing.

Are common stocks suitable for beginners?

There are thousands of publicly traded companies in the United States alone, and some are far more beginner-friendly than others. Beginners should focus on businesses with stable, growing revenue that are generally easy to understand before evaluating fast-growing, volatile businesses.

Is preferred or common stock a better investment?

The best choice between preferred and common stock depends on your investment goals. Preferred stocks are a form of fixed income investment and, therefore, are most appropriate for investors whose priorities are income and capital preservation. On the other hand, common stocks can share in the success of the underlying business and may be a better choice for investors looking to grow their money over the long term.

How do taxes affect my investments in common stocks?

If you own common stocks in a standard (taxable) brokerage account, there are two potential tax implications. If you sell the stock for a profit, you might have to pay capital gains tax on it. And if your stocks pay dividends, they are generally taxable, although most dividends get lower tax rates than ordinary income.

Can I lose all my money investing in common stocks?

It's unlikely to lose all of your money with a diversified portfolio of common stocks, especially if you focus on established and profitable businesses. However, with any given stock, there's always a chance that something could go seriously wrong, leaving shareholders wiped out.

Can you make money on common stock?

Returns can vary over short periods of time and from stock to stock. But over the long term, stocks as an asset class tend to deliver strong returns. Historically, the S&P 500 has averaged a 9% to 10% total return over the long term.

What Are Common Stocks? Pros, Cons, & How to Invest

Common stocks represent partial ownership in a company and are the type of stock most people buy. Common stocks offer voting rights, as well as the potential for dividends and capital appreciation. You can find information about a company's common stock in its balance sheet.

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Common stock FAQ

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About the Author

Matt Frankel, CFP, is a contributing Motley Fool stock market analyst specializing in the real estate and financial sectors. Prior to The Motley Fool, Matt taught high school and college mathematics. He holds a bachelor’s degree in physics from the University of South Carolina, a master’s degree in mathematics from Nova Southeastern University, and a graduate certificate in financial planning from Florida State University. He won a SABEW award for coverage of the 2017 Tax Cuts and Jobs Act. He is also regularly interviewed by Cheddar, Globe St, The National Desk, and other TV networks and publications for his real estate, financial, stock market, and investing expertise.

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