Preferred shares represent some degree of ownership in a company, but they generally do not have the same voting rights. Common stocks are probably what you think of when you're looking to invest in stocks. Common stock grants you a stake in the company with the ability to vote on key issues, such as the election of the board of directors or the adoption of certain company policies. When people hear the word stocks, they often think of elaborate graphics and flashing prices that move throughout the day.
But when you buy a stock, you buy a stake in a real business and your long-term profits will depend on the profits and overall success of that company. Earnings growth will contribute to raising the stock price for common stock owners and will allow the company to share those profits with shareholders in the form of dividends. Preferred shares are more like a bond than a stock. Usually, you won't have any voting rights, but you will receive dividend payments before ordinary shareholders.
Preferred shares are issued at nominal value and shares are amortized at maturity, so you don't have the opportunity to revalue the price like common shares. Your return will come mainly from the dividends you receive. Preferred shares can be redeemed before maturity and some preferred shares are convertible into a certain number of common shares. While the opportunity for significant profits is much lower with preferred shares than with common stock, the risk is also considerably lower.
Mid-cap stocks can help diversify your portfolio away from the large cap stocks that most people tend to focus on. Many of today's large cap stocks were once mid-cap stocks before growing to new heights. You can also buy baskets of different types of stocks by using ETFs and mutual funds that track various indices. Any of these types of stocks could also be classified into other categories, such as growing stocks, securities stocks, income stocks, and front-line stocks.
For example, they might consider investing in different types of things, such as a combination of stocks, bonds, real estate, and more. Within these broad categories of common and preferred shares, the different types of shares are further divided in other ways. The type of shares, common or preferred, held by a shareholder determines the rights and benefits of ownership. Shareholders don't own a corporation, but corporations are a special type of organization because the law treats them as legal entities.
