Beginner's Guide to Stock Basics

Now let's talk about common stock.

Common stock, which is sold by most companies, is the only "pure" form of stock in the market. It's what people are talking about when they just mention "stocks." Because common stock has the potential for greater returns, investors buy it more often than they do preferred stock.

Common stock represents an equity ownership in the company and entitles shareholders the right to vote on management issues at the annual shareholder's meeting.

Common stockholders may, or may not, receive dividends, depending on management's decision about distributing profits.

Many beginning investors believe that preferred stock is better than common stock, but that's not necessarily the case. Your decision to purchase one over the other depends upon your financial goals, your tolerance for risk, and your interest in voting rights in the company.

Because most investors are interested in price appreciation, they usually purchase common stock. You get more "bang for your buck." It's that simple -- and so is our goal for you: to get the returns you need to fund your dreams. That's why we wrote this guide.

So, from this point on, whenever we refer to "stock," we mean common stock. A little later, we'll begin to learn about specific kinds of stocks that are best for you, such as growth-producing or income-producing.

Right now, though, you're ready to step a little further along the trail.