I've noticed that many people approaching the stock market don't fully understand the fundamental difference between the two main types of shares. The reality is that not all shares are the same, and this is a critical thing you should know before investing.

Basically, companies can issue two main categories: common shares and preferred shares. Each has its own set of rules, and choosing one or the other depends quite a bit on what type of investor you are.

Common shares are the most traditional type. If you buy a common share, you get voting rights at shareholder meetings, which means you can influence important company decisions. The earning potential is quite higher here, but it also comes with volatility. The dividends you receive will depend on the company's financial performance, so in good years you earn a lot, but in bad periods you might receive nothing. In case of bankruptcy, you are among the last in line to recover your money.

Preferred shares, on the other hand, work differently. You don't have voting rights, but in exchange, you receive more stable and predictable dividends, usually at a fixed rate. Here's where it gets interesting: in case of liquidation, preferred shareholders have priority over common stockholders. They are like a middle ground between common shares and bonds.

There are variants of preferred shares worth knowing. There are cumulative ones, where unpaid dividends accumulate for later payment; convertible ones, which you can transform into common shares under certain conditions; and redeemable ones, which the company can buy back. Each one suits different strategies.

Now, which is better? It totally depends on your profile. If you're looking for long-term growth and willing to tolerate volatility, a common share is probably your choice. These securities offer high liquidity in main markets and the potential for capital appreciation is considerable, especially if the company grows.

But if what you want is a steady and predictable income stream, especially if you're close to retirement or simply prefer to reduce risk, preferred shares are more your style. The trade-off is that the growth potential is limited and they tend to be less liquid.

An interesting fact: if you compare the historical performance of the S&P U.S. Preferred Stock Index against the S&P 500 over a five-year period, you can clearly see the differences. The preferred stock index fell about 18 percent, while the S&P 500 rose nearly 58 percent. This reflects how they respond differently to changes in interest rates and market conditions.

If you decide to enter this market, the process is quite straightforward. You need a regulated broker, open your account, carefully analyze the company to define your strategy, and execute your order. You can choose market orders or limit orders, depending on your preference.

My personal recommendation is to diversify. Mix common shares with preferred ones to balance risk and return. Regularly monitor your portfolio and adjust according to how the market moves. The key is to understand what type of investor you are and choose the instrument that aligns with your financial goals.