Wiser Wealth: What You Need to Know About Preferred Stock

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Stocks & Bonds

If you are happy with a company then you might be considering buying some shares of their stock even if you don’t know much about investing. However, there are different types of stock and the kind you buy can have very different outcomes on your investment.

If you are new to learning the differences between common stock and preferred stock, an article via Nerdwallet goes into the details. One of the key differences to bear in mind is that common stock is kind of at the bottom of the totem pole in terms of benefits. As the name indicates, the preferred stock will take preference.

What that means is, when it is time for the payout, those with preferred stock will get their shares before those with common stock. So if the company is forced to liquidate, those with common stock are getting whatever remains once everyone higher up has been paid.

However, common stock does have the advantage of having unlimited room for growth if the company continues to be successful. So if you believe the company will be strong for the long haul, there are benefits to choosing common stock.

Preferred stock does not come with that unlimited potential, and some companies might also skip the payout of their dividends, which impacts preferred stockholders. So there is a risk to investing in preferred stock.

The upside of that risk is that preferred stock will often yield the highest payout assuming everything goes the way you want it to. There are also bonds you can invest in, which take precedence in the payout structure, but preferred stock offers the higher pay in exchange for the risk the investors are assuming.

Fred Hubler, Chief Wealth Strategist for Creative Capital Wealth Management Group, has his “spin” on preferred stock. “In our office, we like to use private preferred stock. These are public companies who offer private preferred stocks via authorized family offices like ours.”

“The benefit to our clients,” according to Hubler, “is they get to have the high dividend of preferred stock, without the market risk. There is a 5-year hold, but having some money out of the stock market at this time can be a good thing”.

There is a lot to consider when deliberating what type of investment you wish to make, and a lot will likely change depending on the company you are looking at. It is important to carefully look over what your company is willing to issue and to look at the data surrounding the company, such as the credit rating for what they are offering. It may also be worth consulting with your financial analyst for further insight.

If you have additional questions about preferred stock, make sure to look to the article from Nerdwallet for answers here.

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In our next NoonZoom happening on December 7th, Fred Hubler, Chief Wealth Strategist for Creative Capital Wealth Management Group will share 5 wealth growth strategies, including Qualified Opportunity Zones, he has learned from his nearly two decades of working with high-net-worth individuals and families.

He will also share investments and strategies that are only available to accredited investors as well as some new spins on existing strategies.

Click here to learn more and register to participate.

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