I've been observing for some time how many beginners in investing don't really understand the differences between common and preferred stocks, and that costs them money through poor decisions.

The reality is that not all stocks are the same. A company can issue several types, each with completely different rights. Some give you voting rights on important decisions, others do not. Some pay fixed dividends, others variable. And in case of bankruptcy, the order in which you recover your investment changes everything.

Let's start with the basics. Common stocks are what most people know: you buy a fraction of the company, have voting rights at meetings, and receive dividends if the company makes money. The problem is that those dividends can vary greatly or even disappear in bad times. If the company goes bankrupt, you're among the last to recover anything. But in exchange, you have real growth potential if the company grows.

Preferred stocks are the opposite in many ways. Generally, you don't have voting rights, so you don't influence how the company is managed. But in return, you get more stable dividends, often fixed or with a pre-established rate. In bankruptcy, you're paid before common shareholders. There are interesting variants: some accumulate unpaid dividends for later, others can convert into common shares, and some can even be repurchased by the company.

The key difference in risk and return is noticeable. Common stocks rise and fall wildly depending on the market and the company's performance. Preferred stocks are more predictable but also less exciting in terms of potential gains. If interest rates go up, preferred stocks suffer more because their fixed dividends become less attractive compared to other investments.

When you look at the actual market numbers, this difference is clear. The S&P 500 rose 57.60% in five years, while the S&P U.S. Preferred Stock Index fell 18.05% in the same period. That pretty well summarizes how these two types behave when monetary policy changes.

To choose between one or the other depends on who you are as an investor. If you're 30 years old, working, and can withstand volatility for 20 years, common stocks make sense for you. You seek long-term growth, so short-term market noise doesn't scare you. But if you're close to retirement or need a steady income stream, preferred stocks are more your speed. You prefer to sleep peacefully with predictable dividends rather than worry about fluctuations.

A strategy that works well is to mix both. Some of your savings in common stocks for growth, others in preferred stocks for stability. That way, you reduce risk but keep potential.

If you want to start investing in stocks, the process is straightforward: find a regulated broker, open an account, carefully analyze the company you're interested in, and place your order. You can buy direct stocks or also trade CFDs if your broker offers them and you want leverage.

The important thing is to truly understand these differences between common and preferred stocks before putting your money in. It's not just theory; it directly affects how much you earn, how much you lose, and how peacefully you sleep at night.