Question: Am I a common or preferred stockholder?
I'm basically just trying to teach myself a few things about mutual funds and such. If I invest in medium risk mutual funds does that mean that the stocks that I own are preferred stock? Because I don't have voting rights?
The part where I get confused is that if the business must liquidate the preferred stockholders get paid before the common stockholders. That just seems backwards to me.
The common stockholders are the ones that sit at the desk and do the voting and such correct? So you would think that in the event a business must liquidate, they would be the ones that get paid before the preferred stockholders (general Public). Can someone clarify this?
Answer:
Depends upon the shares that you own. If you own preferred shares, you are a preferred shareholder. If you own common shares, you are a common shareholder. If you own both, you are both.
Some mutual funds retain the voting rights of the shares held while others pass them on to the fund investors.
I think you are confused about a bunch of stuff:
a) Preferred and common stock have way more differences than just voting rights. Preferred stock never pays off more than par. That means that if par on a share of preferred stock is $10 (which usually means the market price is near $10) the company could become the most successful best company in the whole world and you will never get more than $10 for the preferred (this isn't exactly true but it's nearly true). People buy preferred stock for dividends.
b) Preferred stock is higher up on the capital food chain than common stock but in the event of a bankruptcy, you get slaughtered on preferred stock too. On the first day that it is announced that the preferred stock is not going to pay a dividend you can expect it to drop in value by 70%. And a company can forgo preferred dividends without declaring bankruptcy. In bankruptcy preferred shares often get nothing. Common almost always gets nothing. You don't want to own either in a bankruptcy. And preferred will generally only get something in a Chapter 11 reorganization bankruptcy. In a Chapter 7 liquidation bankruptcy, I can't think of a single time preferred has been paid anything (which doesn't mean they don't exist, but they are rare).
c) Most stock mutual funds do not invest in preferred shares unless they specifically tell you they are investing in preferred shares. There are mutual funds called things like "ABC fund company Preferred shares" and then mutual funds that invest in convertible securities would probably have a bunch (there are lots of convertible preferred shares out there). In general if you invest in ABC fund company Mid-cap equity fund" you should expect to own no or very few preferred shares.
d) Contrary to what the other poster says, mutual fund companies do not pas through voting rights to fund holders. Fund holders have no legal right to vote (they don't own the shares). There are no - not one - mutual funds in the US that pass through voting rights because tehy can't and wouldn't want to. What mutual fund owner would want to get 700 proxy statements a year anyway?