Recently, I was reviewing my portfolio and realized something that many novice investors overlook: not all stocks are the same. Seriously, the difference in what you invest in can completely change your financial strategy.

Most people only think about common stocks, but it turns out there’s a whole world of preferred shareholders that play by very different rules. And honestly, depending on where you are in your financial life, one or the other type might be exactly what you need.

Let’s first see what makes common stocks so popular. They are the classic type everyone knows: you buy a piece of the company, you have voting rights on important decisions, and if the company grows, your investment grows with it. Liquidity is incredible—you can sell quickly if you need to. But of course, with that potential for gains comes volatility. Dividends vary depending on how well the company is doing, and during tough times, they could disappear completely.

Now, preferred stocks are a completely different animal. Imagine you want the benefits of being a shareholder but without the stress of volatility. This is where preferred shareholders come in. These types receive fixed dividends or at a pre-established rate, much more predictable than common stocks. They don’t have voting rights at meetings, but in exchange, they get priority in dividend payments. If the company runs into trouble, preferred shareholders recover before common shareholders.

There are several variants of preferred stocks worth knowing. Cumulative preferred stocks, where if the company can’t pay dividends one quarter, they accumulate for later. Convertible preferred stocks allow you to exchange them for common shares under certain conditions. And redeemable preferred stocks, which the company can buy back whenever it wants. Some preferred shareholders even have dividends linked to the company’s actual financial results, so it’s not all as fixed as it sounds.

The position of these stocks in the financial hierarchy is interesting. In case of liquidation, preferred shareholders get paid before common shareholders but after creditors and bondholders. It’s like being in the middle of the road: better than ordinary shareholders but not as protected as bondholders.

So, which one to choose? It depends entirely on your profile. If you’re 30 years old and want to grow your wealth long-term, common stocks are your friend. You tolerate volatility knowing that in 20 years, you’ll probably have gained much more. But if you’re close to retirement or simply need a steady, predictable cash flow, preferred shareholders offer that stability you’re looking for.

One interesting thing I noticed when reviewing historical data: the S&P U.S. Preferred Stock Index, which represents about 71% of the preferred stock market in the United States, fell 18.05% over a five-year period, while the S&P 500 rose 57.60% in the same span. This clearly shows how these two types of investments behave very differently, especially when interest rates change.

The reality is that preferred shareholders are sensitive to changes in interest rates, almost like bonds. When rates go up, the prices of these stocks go down. But that’s the compensation for having those dividends more secure.

My personal recommendation is not to see this as a dilemma of one or the other. Mix both types in your portfolio. Use common stocks for growth, preferred stocks for stability. Some conservative investors I know have up to 40% in preferred stocks and the rest in common, and sleep peacefully. Others more aggressive have only a small portion in preferred stocks.

If you want to start investing in either of these types, the process is quite straightforward. Choose a regulated and trustworthy broker, open your account, carefully analyze the company you’re interested in, and place your order. You can go at the market price or set a limit price. Some brokers even allow you to trade CFDs on these stocks if you don’t want to hold them physically in your portfolio.

What’s important is that you understand what you’re buying. Common stocks offer growth potential but with risk. Preferred stocks offer predictable income but with less opportunity for your investment to multiply. Both have their place in a smart investment strategy.