I recently read about investments and realized that many people confuse the different types of stocks that exist. The truth is, not all stocks are the same, and understanding the differences between preferred and common stocks is key if you want to invest wisely.

Basically, companies issue two main types: common and preferred. Each has its own vibe and different rights. Common stocks are the most usual, give you voting rights at shareholder meetings, and you can receive dividends, although they vary depending on how the company performs. If the company goes bankrupt, well, you're last in line to recover anything. Preferred stocks, on the other hand, generally do not allow voting but offer more stable and priority dividends. In case of bankruptcy, you have priority over common shareholders to recover your investment.

What’s interesting is that preferred and common stocks attract investors with very different profiles. Preferred stocks are for people seeking predictable income and security, typically in retirement stages or conservative investors. Common stocks are for those wanting to grow their capital long-term and who are willing to tolerate volatility.

Within preferred stocks, there are variants. There are cumulative ones, where unpaid dividends accumulate; convertible ones, which you can exchange for common shares under certain conditions; and redeemable ones, which the company can buy back. All have different features depending on your strategy.

The rights they grant are quite different. Common stocks give you decision-making power in the company, but your dividends depend on financial performance. You can earn a lot in good times but also end up with nothing if the company has problems. Preferred and common stocks also differ in liquidity: common stocks are easier to sell on major markets, while preferred stocks usually have restrictions and less movement.

A clear advantage of common stocks is their potential for appreciation. If the company grows, your investment grows with it. But the risk is real: price volatility can be brutal. With preferred stocks, you gain stability but give up explosive growth. Dividends are fixed or almost fixed, which is predictable but limited.

To give you some context, look at the S&P U.S. Preferred Stock Index versus the S&P 500 in recent years. The preferred stock index fell about 18%, while the S&P 500 rose nearly 58% in a similar period. This clearly shows the behavioral differences between these two types of investments.

If you want to start investing, first find a regulated and trustworthy broker. Open an account, carefully analyze the company you're interested in, and execute your order. You can choose market or limit orders depending on your strategy. Some brokers also offer CFDs on stocks if you prefer not to hold them directly in your portfolio.

My recommendation: diversify. Mix preferred and common stocks to balance risk and return. If you're early in your financial life and can handle volatility, go for common stocks. If you're thinking about retirement or want a steady income stream, preferred stocks are your option. The important thing is that you understand what you're buying and why.