Recently, I started analyzing the differences between common and preferred stocks because many investors don't really understand what separates them. And honestly, this is key information if you want to invest without surprises.

In reality, when a company issues shares, not all are the same. There are two main types that operate in very different ways, and understanding this can completely change your strategy.

Common stocks are what most people know. They give you voting rights at the meetings, you participate in company decisions, and you receive dividends that vary depending on how well the company performs. The good side: high growth potential. The bad side: volatility and significant risk. If the company goes bankrupt, common shareholders are last in line to recover anything.

Preferred stocks work differently. Here, you don't have voting rights, but in exchange, you get more stable and predictable dividends, usually with a fixed rate. The interesting part is that in case of liquidation, you have priority over common shareholders (though not over creditors). There are interesting variants: cumulative preferred stocks accumulate unpaid dividends, convertible preferred stocks can be transformed into common shares under certain conditions, and redeemable preferred stocks can be repurchased by the company.

From an accounting perspective, preferred stocks are classified as equity, but they have hybrid features, combining elements of debt and capital. That's why regulators sometimes treat them as debt in their analyses.

Now, who should buy each type? If you're someone who can tolerate volatility and seeks long-term growth, common stocks are your option. But if you prefer regular, predictable income—especially near retirement—preferred stocks make more sense. Many conservative investors prefer them precisely for that stability.

Liquidity also varies quite a bit. Common stocks in major markets are highly liquid; you can buy and sell quickly. Preferred stocks tend to be less liquid, with sale restrictions and clauses that can complicate things.

An interesting fact: if you compare the S&P U.S. Preferred Stock Index with the S&P 500 over recent years, you can clearly see how they behave differently. The preferred stock index fell 18.05% over five years, while the S&P 500 rose 57.60%. This reflects how these two types of investments react differently to changes in interest rates and economic conditions.

To invest, the process is relatively simple: choose a regulated broker, open your account, thoroughly analyze the company, and execute your order. You can place market or limit orders. Some brokers also offer CFDs on these stocks if you prefer not to hold them directly in your portfolio.

My recommendation: diversify. Mix common and preferred stocks according to your risk profile. If you're early in your financial life, you can tolerate more volatility with common stocks. If you want to preserve capital, preferred stocks offer that cushion of stability you need. The important thing is to review your portfolio periodically and adjust based on how the market evolves.