Invest

Invest

A stock is an investment that people make in a company. What really happens is that a person pays an amount of money to the company, which is like a loan, and in return, he is paid from the profits of the company. Therefore, if the company makes profits, then he makes profits and if the company make loses, he makes losses together with the stock. This means that he becomes like a co-owner of the company. There are two different types of stocks, the common stocks and the preferred stocks. On my way to school I met with one of the stocks and to my surprise, it could speak to me. It was so amazing and beneficial to me because I have always wanted to know how I could save money for my college and here I was talking to something I could invest in.

The stock told me that it is called the preferred stock. He continued and told me that he had very many benefits, which would help in the saving of my college money. He said that one of the benefits that I could get from using him is that my money/savings would never get lost. This because in case the company would happen to be bankrupt, I would have the first opportunity to have a claim on the asset. Therefore, I would be paid all my money before the other stocks are paid. This means that my money would be safe with him or he acts as a security to my money since it can never get lost. In addition, incase the company becomes bankrupt, one of the company assets would be sold so that they could repay me.

Additionally, he told me that I would also get a fixed amount, which is payable at the end of every accounting period and it is mandatory despite the fact that the company might make a loss or not. This means that if I saved my money through the preferred stocks, not only will it be safe it would also be earning me some profits known as dividends, which are usually paid at the end of every financial year. These dividends are usually of a certain percentage of the money, which I have saved, and they are usually fixed in the case of preferred stocks. Moreover, if the company were unable to pay my dividends that did not mean that I would not be paid. This is because the money will accrue until the company is able to pay me and if it becomes bankrupt, I will have the chance to be paid both the dividends and my savings at the same time.

However, the stock told me that there are certain disadvantages that he also has. One of them is that I would not get any voting rights in case of any general meeting or any other meeting in the company. This means that I will not be able to exercise the right of voting as a co-owner of the company. On the other hand, if the company decides to buy my stocks back and stop paying dividends, they have a right of doing so at any time. Therefore, the company can decide to give me back my savings living me out without a place to save my money.

On the other hand, there are certain reasons that made me choose the preferred stock as compared to the other stock, which is the common stock. This is because the common stock is not safe or secure and in case the company happened to be bankrupt, the money might get lost with the fall down of the company. This means that all my savings might go the drain if this was to happen as compared to the preferred stocks. Since I am a student, I cannot take chances with my savings where it might all get lost and the chances of being paid never happen.

Another disadvantage that made me not choose the common stocks was that in terms of dividend payment, the preferred stocks have a higher chance of paying as compared to the common stocks. This is because incase the company is making losses, I would not be paid any dividends as compared to the preference stock where my dividends are fixed and are payable even if the company is making losses. However, the common shares might pay a higher dividend in case the company was to make high profits at the end of the financial year. As a student, I would not like to gamble with my savings on the chances of whether the company is making profits or losses. Additionally, the common stocks might have other advantages, as I would be able to exercise my voting rights as compared to the preference share, which does not. Realistically thinking, the chances of attending those meetings might be nil hence the chances of voting. Therefore, I would prefer the preference share to the common stock.