What does the term Preferred Stock mean? Learning the Lingo of Investing

Many of us are involved in the stock market, sometimes indirectly. If you participate in a 401k or mutual fund, you are investing in stocks through a corporation.

We hear a lot about the volatility of the stock market as well as the tremendous profits available there. But to many of us, the stock market and how to invest there is a big mystery.

For openers, stock investors seem to have their own special language and it's hard to understand what all those mysterious terms mean. So let's take a few moments and discuss what some of the more commonly used stock market investing terms really mean.

STOCK - A stock is a small portion of a company. You can buy one share of a stock, or 100 or 1000...as many as you want. When you've purchased these, you become a SHAREHOLDER.

DIVIDEND - The 'payout' of your stock. It's a percentage of what the corporation earns that is given to you as a shareholder.

COMMON STOCK - These are the more common types of stocks, obviously. If you trade on the market, you're trading common stocks. You get voting rights in the company and dividends if available.

PREFERRED STOCK - is the kind that is given to investors in the company so it cannot be purchased on the open market. It does not carry voting rights but it is guaranteed dividends if there are dividends to be distributed to shareholders that year.

OPTIONS - Options are certificates that entitle a trader to purchase a stock at a given price for a limited time. It's like locking in a great interest rate, only for stocks.

MUTUAL FUNDS - This service takes money from both you and other investors and compiles a large portfolio of stocks. A percentage of the dividends goes to the mutual fund's procurers, and another percentage goes back to you.

BONDS - A bond is money lent for a specific purpose, like an improvement to a building. Bonds are paid back steadily and at a fixed rate, so they are low-risk.

FUTURES - A contract to buy or sell a particular commodity or investment vehicle at a specific price.

COMMODITIES - A raw material, often agricultural, that is traded openly.

Obviously, this is just an introduction. Contact your local professional to get a more detailed account and to venture some money in this exciting endeavor.