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Common stocks, as their name suggests, FSMsmart Review are the most common type of stocks in the stock market. Of course, that’s true for a good reason. They give benefits that investors wouldn’t be able to enjoy if they invested in something else.
In addition, common stocks are also very easy to acquire, perhaps the easiest among other types of investments. That being said, Finance Brokerage Brokers Review common stocks also have some shortcomings that you wouldn’t want to overlook if you’re serious about making money in the stock market.
In this article, we will list down the top disadvantages of common stocks that you should think about if you’re planning to go all-in with common stocks. Read on!
Erratic Movements in Prices
The stock market, as with other markets, is very speculative and sometimes, even if there’s no obvious or major reasons, huge drops in the prices of the shares can be witnessed, either in a single group of stocks or across various sectors and industries.
A simple rumor in the market about the performance of the company can result to fall or increase in share prices. As such, nobody can be certain about the how the market will turn out to be at the end of the trading da.
The erratic nature of the market can be quite a load for the trader to carry.
Downsizing of Dividends
It is a known fact that the dividends of shareholders are slashed during times of economic uncertainty and this is one of the biggest demerits of common stocks. If not because of recession, dividends of capital gains may not be given to the shareholders just because the company is not performing well in the stock market.
Last in the Priority List
In the event that the company goes out of business, the common stockholders are put at the bottom of the priority list. That’s the reason many investors think that owning common stocks can result to you suffering the most during times of bankruptcy or failure of the business.
Only after a company is done with all issues like its employees’ pays, creditors and managing taxes, the owners are entitled to get paid.
Limited Rights
Even if it may seem to be extremely lucrative to have bought common stocks, in reality, it may not always be so. Information about the company’s performance that is provided in its annual report and is uploaded on the official website is very complex for a common shareholder to comprehend.
Further, the complexity of the stock market industry makes it even tougher to come up with wise investment decisions. In a similar manner, even though common shareholders are treated as owners of the business, they don’t have as many rights and powers as those of the chief executive officer and board of directors.
All these factors commonly lead in a lack of understanding in investments. Most of the common investors or individuals therefore depend on third parties or agents for consultations on investments. Small shareholders seldom have a say in the company matters since such things are almost always entirely dominated by the largest shareholders as well as those who own the maximum share.
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