What are the disadvantages of investing in common shares?

Investing in common shares does carry several potential disadvantages, and understanding this is important for any investor. The correct choice highlights a significant risk: shares can indeed become worthless if a company becomes insolvent. This situation typically arises when a company is unable to meet its debt obligations, leading to bankruptcy. In this scenario, common shareholders are the last in line to be compensated, after all debts and obligations are settled. If the company's assets are insufficient to cover its liabilities, common shareholders may receive nothing.

Investors in common shares should be aware that they are exposed to both market risks and specific risks associated with individual companies. Market risks involve factors that can affect the entire market, such as economic downturns or changes in interest rates, while specific risks are tied to events that might influence only a particular company, such as management decisions or competitive pressures.

While dividends can vary and are not guaranteed beyond fixed rates, this aspect alone does not encapsulate the full range of disadvantages. Hence, while it is a concern, it does not sufficiently capture the potentially severe risk of total loss when a company goes bankrupt, which further underscores the importance of understanding the implications of investing in common shares.