How Different Kinds of Stocks Work


Stocks (also called equities) are a key part of most investors’ plans to build wealth. But just because you’ve heard that stocks have historically posted high returns doesn’t mean they’ll always do so. That’s why it’s important to understand how different kinds of stocks work and what kind of return you can expect from each one.

Essentially, shares of a publicly traded company represent ownership of the company. When a company goes public, it sells these small pieces of ownership to investors in order to raise cash and fund its growth. The value of each share can rise and fall in response to many factors, including general market volatility and specific events like a corporate crisis or product recall.

As the price of a company’s stock declines, shareholders lose some or all of their initial investment. On the other hand, if a company’s performance increases, it may be able to issue additional shares and the share price rises. This is known as capital appreciation. Shareholders can also make money through dividend payments, which are regular shares of a company’s profits.

Investors choose which stocks to buy based on their expectations about how the companies will perform in the future. This is why stocks are often described as a “market-based” investment. For example, a stock’s price may rise if the company is expected to perform better than average in its industry. In addition, a company’s earnings history can influence the prices of its stock.

Other things that can affect the price of a stock include interest rates, geopolitical uncertainty or weather problems, and soaring corporate profits. It’s a complex environment, so that’s why prudent investors avoid investing heavily in just a few stocks and instead build well-rounded portfolios of stocks in different industries and geographies.

Some stocks are more volatile than others, and this is a major reason why most financial professionals recommend diversifying your investments across multiple sectors. Your Edward Jones financial advisor can help you develop a portfolio of stocks that is appropriate for your investment goals and risk tolerance.

There are many different kinds of stocks, but the most common are common shares and preferred shares. Both types offer potential benefits, but they differ in terms of return and level of risk. Common shares are a popular investment choice for many investors because they offer the potential to grow in value and provide a return on your initial investment. Preferred shares, on the other hand, typically pay a higher dividend than common shares and are often associated with more stable companies with established track records. In some cases, preferred stocks also allow holders to vote on key management decisions. Some classes of preferred shares may even have special rights to receive profits or liquidation proceeds before other types of shareholders.

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