Page 180 - A Canuck's Guide to Financial Literacy 2020

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Becoming a Shareholder

When you purchase shares of a public company, you’re known as a shareholder. As a
shareholder, you have ownership stake in the company and are eligible to receive
dividends. In addition, you have the right to vote on certain issues relating to the company
and be elected on the board of directors.

There are two types of shareholders, common shareholders and preferred shareholders.

Common Shareholder

Common shareholders hold common shares of a public company. Most shares in the public
market are owned by common shareholders who have the right to vote during the
company’s annual shareholders meeting. The shareholders meeting allows them to vote on
issues pertaining to the company and select the company’s board of directors.

Preferred Shareholders

Preferred shareholders own a company’s preferred stock and have no voting rights. They
cannot vote on matters that pertain to the company. However, they’re eligible to receive
annual dividends before common shareholders. If the company was going through
bankruptcy, preferred shareholders are paid first before common shareholders.

Risk Level of Stocks

The majority of people have stocks in their investment portfolio. Since 1926, stocks have
returned an average rate of 10% annually since 1926. This is a higher return that you would
normally receive from other investment instruments such as bonds, which are less risky.
Stocks are on the far-right end of the risk/reward spectrum. The more stocks that you’re
holding in your portfolio, the more volatile your portfolio will be. However, you will
experience a higher return long term if you’re buying established, blue chip companies that
have a fairly stable stock price, pay out dividends and are considered relatively safe.