Common stock is a type of investment asset that allows investors to own a portion of a company. Shares of common stock are typically issued when a company first goes public and are then traded on a stock exchange. When an investor buys a share of common stock, they become a shareholder in the company, entitling them to certain rights and privileges. These rights may vary depending on the type of common stock and the issuing company, but generally include the right to receive dividends, vote in corporate elections, and receive a portion of the company’s profits if it is liquidated.
The potential for gains and income is one of the primary advantages of investing in common stock. When a company’s stock price increases, the value of the investor’s shares also increases, allowing them to potentially cash in on their gains. Furthermore, many companies pay out dividends to their shareholders on a regular basis, providing them with a steady stream of passive income.
However, investing in common stock also carries certain risks. The stock market can be unpredictable, and stock prices can fluctuate significantly over short periods of time. This means that investors may not always make a profit, and may actually lose money if the stock price declines. Furthermore, shareholders are not guaranteed any returns and may not receive any dividends or liquidation proceeds if the company is not profitable.