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Preferred Shares and Common Shares

Preferred Shares and Common Shares

Before any Canadian investor puts their hard-earned money into any particular investment, they should be aware of the loads and risks involved in their share class. The uninformed investor will pick their investment without considering the share class they have bought into. This could result in unanticipated investment loss or poor dividend performance. In order to make an informed, financially wise decision in securing your investment you should have a basic understanding of the share classes and their differences.

Preferred Shares

This share grouping refers to shares that are guaranteed somewhat like bonds, to pay when there are dividends to be had. The share is also secured in the event that the company goes bankrupt. The preferred shares holder is guaranteed first dibs at company assets before the common shareholder. With this safety however, comes a price. The interest on preferred shares is lower than common shares and should be a long-term investment option for the Canadian investor.

Common Shares

This grouping refers to shares that the company releases for a public offering. These shares are purchased and sold by the investor through the use of a secondary market. Common shares have more risk and do not regularly pay dividends. In fact some common shares of well-to-do corporations pay no dividends at all and unpaid dividends are not your only consideration. For instance if the company were to go insolvent, common shareholders would get their money last, meaning they have a far better chance of investment loss.

Class A Shares

This subclass is part of the preferred stock or share class. Canadian Class A shareholders have more powerful voting rights than the other classes of shares regarding the companies financial operations and business model modifications. Therefore Class A shares are predominately distributed among management rather than the general public traders.

Class B shares

This share subclass is under the heading of common stock or share. In a corporate investment, Class B shares may or may not have voting rights greater than the other shares. This is because companies are allowed to define their own class characteristics. Class B shares are usually issued in mutual funds. These shares have the ability to pay dividends if the shares are sold between four to six years after initial investment. These particular Class B shares usually have a higher investment load level than other shares.

Class C Shares

This subclass is also considered a common share class. Predominately issued by mutual funds, Class C share classes offer the Canadian investor an option that doesn’t require either back or front-end investment loads. For instance, imagine you are in Saskatchewan and you make $1000 online investment. The mutual fund company you’ve picked has a 4% front-end load. This means you only have $960 left to invest. Class C shares have none of these loads. However, Class C shares require more ongoing financial maintenance in the form of handling and trading fees. In short many investors use preferred shares for less risky investments, and the opposite can be true for placing capital in common shares.

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