I have been reviewing how many investors confuse common and preferred shares, so I thought I’d share what I’ve learned about this.

Basically, not all shares work the same way. When a company issues shares, it can do so in different forms, each with specific rights. The point is to understand what you are really buying and what to expect from it.

Common shares are the most typical type you’ll see in the market. They give you voting rights at the meetings, meaning you can have a say in important company decisions. The good side is that you have real growth potential if the company does well. The bad side is that dividends vary greatly depending on how the company performs, and in case of bankruptcy, you are among the last to recover anything.

Then there are preferred shares, which work quite differently. They do not give voting power, but in exchange, you receive more stable and predictable dividends. It’s like the company telling you: “You don’t vote, but I guarantee you regular income.” In bankruptcy, preferred shares have priority over common shares, although they are below creditors.

What’s interesting is that preferred shares have several variants. There are cumulative ones, where if the company doesn’t pay dividends in a period, they accumulate for later. There are also convertible ones, which you can transform into common shares under certain conditions. And there are redeemable ones, which the company can buy back whenever it wants.

From a rights perspective, common shares allow you to participate in corporate decisions. You receive dividends that fluctuate with the company’s results. In liquidation, you only get paid after debtors and preferred shareholders. But here’s the attractive part: if the company grows, your investment grows with it.

With preferred shares, something different happens. You have fixed dividends or with a pre-established rate, making them less sensitive to business changes but more sensitive to interest rate changes. That is, they behave a bit like bonds. You don’t have voting rights, but you have security. Liquidity is usually lower, and sometimes there are restrictions on selling them.

To choose between one or the other, it depends on your profile. If you are young and can tolerate volatility, common shares offer more growth potential. If you are thinking about retirement or prefer regular income, preferred shares are more stable.

Liquidity also matters. Common shares in main markets are easy to buy and sell. Preferred shares can be more complicated and have less trading volume.

Looking at historical data, the S&P U.S. Preferred Stock Index fell 18.05% in five years, while the S&P 500 rose 57.60% in the same period. That shows you the difference in behavior between these two types of investments, especially when monetary policy changes.

My recommendation is to diversify. Mix common shares for growth with preferred shares for stability. This reduces risk and gives you the best of both worlds. Open an account with a regulated broker, carefully analyze the companies you’re interested in, and execute your orders carefully. Some brokers also offer CFDs on these shares, which gives you another option if you don’t want to hold the titles directly in your portfolio.

The important thing is to review your investment periodically and adjust according to how the market moves. It’s not complicated; you just need to be clear about what type of shareholder you want to be.