Purchasing preferred stocks could provide first-time investors with a higher yield than common stock investing, but the risk associated with these stocks may make the move unwise, according to CBSNews. As with any other type of investment, default risk exists in the case of preferred stock.
One of the best reasons to purchase preferred stock as a first-time investor is that preferred stockholders get paid off before the common stockholders if the company finds itself in a liquidation situation, according to Investopedia. However, the debt holders are still the ones who get paid first. Preferred stocks often appeal to first-time investors because there is no minimum investment for most of them.