The Differences between Common Stock and Preferred Stock

Amzy Hibler, a finance professional with more than 20 years of experience in the oil and gas industry, serves on the executive team of Technology Guru, a home automation and security company based in Texas. In his free time, Amzy Hibler maintains a passion for investing in the stock market.

Two specific types of stock are common stock and preferred stock. Both are worthwhile investments since they grant investors partial ownership of a business and opportunities to profit from the company’s future success.

Common stock grants stockholders the right to vote on corporate issues, including the election of board leaders. In some cases, investors in common stock receive dividend payments for their shares. However, the company’s board of directors can decide how large these dividends are and if they get paid to investors at all.

Conversely, preferred stock is associated with a predetermined dividend. Since these dividends are not affected by the company’s success, preferred stock investors do not vote on corporate matters. 

However, owners of preferred stock get paid before owners of common stock if the company declares bankruptcy. This gives preferred stockholders a better chance of getting some, if not all, of their money back. Because of these features, preferred stock is less volatile than common stock.

Differences Between Short and Long Term Stock Trading

Amzy Hibler, CFO of Technology Guru and former executive and manager with Chevron Corporation, enjoys investing in the stock market in his spare time. Investors like Amzy Hibler often use a mix of both short-term and long-term stock trading. 

In the stock market, any trade in which the investor holds the stock for less than a year is a short-term trade. Short-term traders seek to take advantage of small fluctuations in the market. This form of investing comes with relatively high risk, due to the possibility of a downward short-term fluctuation.

Long-term trading involves holding a stock for more than a year. In long-term trades, the goal is to see the stock's value rise gradually, generally at a pace comparable to the overall market. A general upward trend is more important than individual small-scale fluctuations for long-term traders.

Short-term and long-term trades serve as more than just descriptors of time. These designations carry legal weight and are taxed differently. Long-term stocks, however, enjoy a reduced tax rate under the capital gains tax, short-term stock trading is taxed as regular income. This encourages investors to spend at least some of their money on long-term, economy-stabilizing investments.