Question

Assume yourself to be a 60-year-old investor who is willing to invest in stock market. You can either invest in common or preferred stock of various companies listed in stock exchange. Based on characteristics of both stocks, which stock would you choose and why?

Answer 1

Since the investor is 60 year old, it is best assumed that he will be risk averse and need a constant earnings. For this preferred stock is preferred as it has lesser risk than common stock and have preferred consistent dividends over the common stock. Preferred stocks are designed such that it can guarantee a constant dividend whenever a company earns and this has priority over common stock. Which means firs the dividends of preferred stock should be paid first and later only we can compensate for common stock.

---Considering the age and risk averse nature, for a constant stream of income, preferred stock is chosen