Types of Investments
There are several ways to invest your money. To determine which investment vehicle is right for you, you need to understand the characteristics of each type.
Stocks, also called shares or equities, represent a share in the ownership of a corporation. The price of a stock fluctuates up or down based on investor demand. For example, if a company appears to be doing well, then more people may want to buy its stock, pushing the price up. If the company doesn't appear to be doing well, people tend to sell their shares and the price is likely to fall. Some stocks pay a portion of the company's profits to investors in the form of dividends.
Stocks trading on the stock exchange have a settlement period of three business days after the trade date. This is a normal industry practice to allow time for the buyer’s brokerage to pay for the stock or the seller’s brokerage to deliver the shares to complete the transaction.
There are two main types of shares:
- Preferred Shares
Preferred shares have a claim to dividends ahead of common shares. They also have a higher claim to the company's assets if the company goes bankrupt, but rank behind the rights of bond holders.
- Common Shares
This type of share has a higher degree of risk because they rank behind preferred shares in the event of bankruptcy. They do, however, offer the greatest potential return. There can be different classes of common shares. Each class has different entitlements, such as voting rights or the right to receive dividends.