Money Monday - Personal Finance FAQ's
In my role as a Personal Finance Educator, I get some good questions to answer. Here are some of the ones from last week that I think are valuable to share.
What exactly does shorting a stock mean?
- People short stocks because they judge that the current stock price is overvalued.
- So they 'borrow' the stock from their broker, and it is sold to another investor/buyer. Remember, short selling is the selling of a stock that the seller doesn't own.
- Money is made when the stock price goes down (minus the commission charges and the costs to borrow the stock).
What are the differences between preferred and common stocks?
- Preferred stocks are less volatile than common stocks, and they pay dividends. However, with less risk due to the volatility of the price of the stock, you have less chance for sizable capital gains.
- Preferred stock is frequently used with the objective of getting steady income payout from dividends. If a company becomes insolvent, preferred stockholders are entitled to assets before common stockholders.
What is private equity?
- Private equity is considered an alternative asset class, so it can add diversity to an investment portfolio.
- It usually consists of equity (stock) investments in unlisted companies. Unlisted companies are those companies that are not listed on public stock exchanges.
- Private equity plays a key role in enabling companies to grow.
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