| Common Stock | Preferred stock | American Depositary Receipts (ADRs) | |
|---|---|---|---|
| Definition |
A share of ownership in a company, investors can buy and sell whole shares and fractional shares. |
Preferred stocks (or preferred securities) combine features of stocks and bonds, potentially offering higher yields than traditional fixed income but with distinct risks. | Many non-U.S. companies trade on U.S. markets through ADRs, which are receipts for foreign shares issued by U.S. banks. ADRs are denominated in U.S. dollars. |
| Benefits |
Potential for higher long-term return compared to other corporate securities. Voting rights (does not apply to owners of fractional shares). Liquidity depending on trading volume.
|
Dividends are typically higher and fixed compared to common stock. Share price experiences less volatility compared to common stock. Preferred shareholders are more likely than common shareholders to recover at least part of their investment if company goes bankrupt.
|
Local U.S.-based trading tends to be more liquid than local foreign markets. Investors may be able to access financial information more easily for ADRs than for direct investments overseas.
|
| Drawbacks |
Dividends, if available, are often lower, variable, and not guaranteed. Stock price and dividend may experience more volatility than preferred stock. Most likely to lose investment if company goes bankrupt.
|
Lower long-term growth potential, if any. No voting rights in most cases. Generally less liquid than common stock.
|
Exposure to fluctuations in a foreign company's local currency could affect the value of investments. Political or economic events in a foreign company's home country could potentially harm your investment.
|