Common stock is a type of equity share issued by a corporation or entity. The buyers of common stock are referred to as shareholders. These allow stockholders to vote on corporate issues, such as the board of directors and accepting takeover bids. Most of the time, stockholders receive one vote per share.
Advantages of Common Stocks
- Yield huge gains.
Common stocks have no limits to the amount of money that you will gain. Although investing in common stocks provides more risk than conservative options like a certificate of deposit or a money market account, the returns are typically better. Although there is always a risk of losing, you are also guaranteed of earning large gains. Because your returns aren’t guaranteed as a shareholder, there is no limit to how much you can gain. This is something every investor wants and needs.
- An ideal investment.
When you purchase common stock in a company, then your personal assets are not at risk if the organization gets into legal trouble. With this type of financial vehicle, you are only allowed to invest with limited liability. Compared to leverage transactions, you are not at risk of losing money that exceeds the total funds you have invested. Although you will be out of the money that you put into the organization, the loss could be something that helps you when you file your taxes for that year.
- Legal liabilities are restricted.
Whatever problems that arise outside a stockholder’s financial investment, you will not be affected. As part-owners, common stockholders have some say in company operations. For example, they elect directors and vote on resolutions, such as the approval of auditors’ reports and mergers and takeovers. 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.
- You can easily purchase common stock on virtually any trading platform.
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. The ease of this investment makes it a simple way to diversify your portfolio. What is even better is that common stocks can be purchased at a fair price. Virtually any trading platform will let you open an account to purchase this asset at any time.
- Common stocks can provide dividends.
Some companies will pay dividends when you purchase common stock and hold it for a specific amount of time. Some companies pay regular quarterly dividends to common shareholders from after-tax earnings. These organizations will pay a particular amount based on the number of shares that you hold in the company. Common stocks of mid-cap and large-cap companies usually trade in large volumes, which means narrow bid-ask spreads and rapid trade execution.
- You can leverage the value of the common stock as collateral.
If you are in the market to purchase a big-ticket item, then the value of your common stock can be used as collateral for a loan or a line of credit. The liquidity of this financial asset is what makes this leverage possible.