What are the disadvantages of investing in common shares?

Investing in common shares carries several disadvantages, one of which is the exposure to both market and specific risks. This means that the value of common shares can fluctuate significantly due to changes in the overall market conditions or specific factors affecting individual companies. Market risks include economic downturns, changes in interest rates, and overall investor sentiment, while specific risks pertain to company performance, management decisions, and operational challenges. Because of these uncertainties, investors may experience substantial losses, making this a key disadvantage of investing in common shares.

The other choices do not encompass the inherent risks associated with common shares. For example, while dividends can vary and may not always provide a steady income, the fixed-rate nature of dividends is not a characteristic of common shares as they can vary widely. Also, common shares can indeed become worthless if a company fails, contrary to the assertion in one of the options. Lastly, dividends paid at lower rates than fixed returns do not encapsulate the much broader concern of risk exposure inherent to common shares.