Recently, I was reviewing how different investors choose between preferred and common stocks, and honestly, most don’t really understand the differences. Let’s clarify this.

Basically, companies issue two main types of shares. Common shares are the ones everyone knows—they give you voting rights at meetings, you receive dividends that vary depending on how well the company performs, and in case of bankruptcy, you are among the last to recover anything. The growth potential is higher but so is the risk.

Preferred shares work differently. They do not grant voting rights, but in exchange, you have more stable dividends, usually fixed or with a pre-established rate. In a company liquidation, you are ahead of common shareholders. It’s like a mix between a bond and a stock.

What’s interesting is that preferred and common shares attract completely different investor profiles. If you’re looking for long-term growth and can tolerate volatility, common shares are your option—ideal if you’re in the early stages of your financial career. But if you want predictable income flow and are close to retirement, preferred shares make more sense.

Within preferred shares, there are interesting variants: cumulative (where unpaid dividends accumulate), convertible (which you can exchange for common shares under certain conditions), and redeemable (which the company can buy back). Each has its own rules depending on what the company needs.

A similar thing happens with common shares—some companies issue without voting rights, and others have multiple classes where each class has different rights. This allows certain groups to maintain control even if they hold fewer shares.

Liquidity is another key factor. Common shares are generally much easier to sell because there’s higher demand in the main markets. Preferred shares tend to be less liquid, which can complicate things if you need to exit quickly.

Looking at historical performance, the contrast between preferred and common shares is quite noticeable. During periods of interest rate changes, preferred shares behave differently because their fixed dividends make them sensitive to those changes—it's like they are bonds in a way.

My recommendation if you’re just starting out: don’t put everything into one type. Mix common shares for growth with preferred shares for stability. This reduces risk and gives you the best of both worlds. Choose a regulated broker, clearly define your strategy based on the company you analyze, and then execute your orders—you can go at the current price or set a limit order. There are platforms that also offer CFDs on these shares if you prefer not to hold them directly.

The main thing is to understand that preferred and common shares are not competitors—they complement each other. Your risk profile and time horizon determine which is better for you at any given moment.