5 Big Advantages of Common Stocks
Common stocks are securities that give you equity ownership in a corporation. As a common stocks holder, you will have voting rights and a share of the company’s dividends and/or capital appreciation. As a mere investor, however, you are at the bottom of the priority ladder. If the company goes bankrupt, you will only receive your money after debt holders, bondholders and preferred stockholders have been given their share.
This makes common stocks riskier compared to preferred stocks or debt shares. But because it performs better than bonds and preferred shares over time, it provides certain advantages. This only shows that common stocks are associated with pros and cons. How good or bad the situation is for you, depends on which side of the spectrum that you are in — whether you are investing on common stock or issuing it.
List of Advantages of Common Stocks
1. Yield huge gains.
As already mentioned, common stocks often outperform bonds, deposit certificate and other types of investment products. As they are guaranteed, what you stand to gain has a minimum and a maximum. Common stocks, on the other hand, have no limits to the amount of money that you will gain. Although there is always a risk of losing, you are also guaranteed of earning large gains. This is something every investor wants and needs.
As already mentioned, common stocks often outperform bonds, deposit certificate and other types of investment products. As they are guaranteed, what you stand to gain has a minimum and a maximum. Common stocks, on the other hand, have no limits to the amount of money that you will gain. Although there is always a risk of losing, you are also guaranteed of earning large gains. This is something every investor wants and needs.
A company issuing common stocks in the financial markets use them as an alternative to debts, as it is a less expensive route. Unlike debts, an issuer of common stocks is not obligated to pay interest to investors, only discretionary payments on dividends in the event that the company has extra cash.
2. An ideal investment.
With this type of financial vehicle, you are only allowed to invest with limited liability. That is, whatever amount you invested initially would be the most that you will lose in the event of liquidation. And because you purchase common stocks on cash basis, you can put a cap on the amount of money to invest. Compared to leverage transactions, you are not at risk of losing money that exceeds the total funds you have invested.
With this type of financial vehicle, you are only allowed to invest with limited liability. That is, whatever amount you invested initially would be the most that you will lose in the event of liquidation. And because you purchase common stocks on cash basis, you can put a cap on the amount of money to invest. Compared to leverage transactions, you are not at risk of losing money that exceeds the total funds you have invested.
3. Legal liabilities are restricted.
Since you are a passive holder of common stocks, your liability to a company is limited. Whatever problems that arise outside a stockholder’s financial investment, you will not be affected. Only the people running the company would have to face the consequences. The only thing you should be worrying about is the company’s health. As long as it is earning and moving on an upward trend, your investment and financial future is safe.
Since you are a passive holder of common stocks, your liability to a company is limited. Whatever problems that arise outside a stockholder’s financial investment, you will not be affected. Only the people running the company would have to face the consequences. The only thing you should be worrying about is the company’s health. As long as it is earning and moving on an upward trend, your investment and financial future is safe.
4. Easy buying and selling process.
As this type of investment is liquid, you have the option to sell it any time you want, or buy more if you wish to grow your stocks. What is even better is that common stocks can be purchased at a fair price.
As this type of investment is liquid, you have the option to sell it any time you want, or buy more if you wish to grow your stocks. What is even better is that common stocks can be purchased at a fair price.
5. There are two ways to gain benefits.
Capital gains and dividends are two ways to earn from stocks. Each stock you own gives you a cut of whatever a company earns since you are a partial owner. If the value of the stock appreciates, so will the capital gains. If the business’s earnings go beyond what it needs to cover maintenance and growth, it has the option to distribute the excess to holders of common stocks, or make dividend payments.
Capital gains and dividends are two ways to earn from stocks. Each stock you own gives you a cut of whatever a company earns since you are a partial owner. If the value of the stock appreciates, so will the capital gains. If the business’s earnings go beyond what it needs to cover maintenance and growth, it has the option to distribute the excess to holders of common stocks, or make dividend payments.
No comments:
Post a Comment