U.S. Stocks: Ordinary, Preferred, and ADRs

When investing in U.S. stocks, it is crucial to understand the different types of stocks. This article will go into detail about the three main types of stocks in the U.S.: common stocks, preferred stocks & ADRs (American Depository Receipts). By acquiring this knowledge, investors can better strategize their investments and increase their returns.

Ⅰ. Common Stock

1.1 Definition and Characteristics

Common stock is the most common type of stock in a company. Shareholders holding common stock own a portion of the company and have the right to participate in the company's decisions and dividends.

1.2 Common stock usually has the following characteristics:

• Voting rights: Common stockholders can vote at general meetings to decide on major company matters, such as the election of board members.
• Dividends: Common shareholders are entitled to receive dividends from the company's earnings, but the amount and frequency of dividends are not fixed and depend on the company's performance and the decisions of the board of directors.
• Capital Appreciation: Common stockholders can receive capital appreciation through increases in stock prices.

As an investor, choosing common stock means you participate in the growth and development of the company and enjoy voting and dividend rights. However, the share price of common stock is more volatile and the investment risk is relatively high, especially during market downturns. Diversifying your portfolio and conducting thorough research on companies can mitigate these risks. Therefore, when choosing common stock, you need to conduct sufficient market research and company analysis.

Ⅱ. Preferred Stock

2.1 Definition and Characteristics

Preferred stock is a financial instrument between common stock and bonds. Preferred shareholders are in a higher order of repayment than common shareholders but lower than creditors in the event of a company's bankruptcy and liquidation.

2.2 Preferred stock usually has the following characteristics:

• Fixed dividends: Preferred shareholders usually receive fixed dividends, the dividend rate is determined at the time of issuance and has a certain degree of stability.
• No voting rights: Most preferred shareholders do not have voting rights and cannot participate in the management and decision-making of the company.
• Preferential repayment: In case of bankruptcy and liquidation of the company, preferred shareholders are repaid in preference to common shareholders.

Preferred shares are suitable for investors seeking stable income. Although preferred shares pay more regular dividends, they lack voting rights and have limited capital appreciation potential. Therefore, when investing in preferred shares, you should pay attention to the company's financial stability and dividend history.

Ⅲ. ADR (American Depository Receipt)

3.1 Definition and Characteristics

An American Depository Receipt (ADR) is a stock certificate traded in the U.S. securities market that represents shares of a foreign company.ADRs make it convenient for U.S. investors to invest in foreign companies.

3.2 ADRs typically have the following characteristics:

• Convenience: ADRs are traded on U.S. stock exchanges and settled in U.S. dollars, reducing exchange rate risk and the complexity of cross-border investments.
• Dividends: ADR holders can receive dividends, but dividends may be affected by foreign exchange and tax policies.
• Diversification: With ADRs, U.S. investors can invest in companies around the world and diversify their investment risk.

ADRs provide convenience for U.S. investors who wish to diversify and invest in foreign companies. However, the distribution and tax treatment of ADRs can be complicated due to the cross-border transactions involved. Therefore, investors should understand the relevant tax policies and company background when choosing ADRs.

Understanding the different types of U.S. stocks helps investors develop a more reasonable investment strategy based on their risk appetite and investment objectives. Common stocks offer the opportunity to participate in company growth, but with higher risks; preferred stocks offer stable dividend income, but lack voting rights; ADRs provide a convenient way to invest in foreign companies, but tax and foreign exchange risks need to be noted.

My Thoughts

From my professional experience, I recommend a diversified approach, combining common stocks for growth, preferred stocks for income, and ADRs for international exposure. Continuous learning and staying informed about market trends and financial innovations will empower you to make better investment decisions. By choosing the right type of stock and developing an investment strategy, investors can better grasp market opportunities and achieve their investment goals. If you have any questions or need further guidance, please feel free to leave a message in the group and I will try my best to answer them.