I have been reviewing how many new investors get lost in stock market jargon, and the truth is that one of the most common confusions is not understanding the difference between common and preferred shares. The reality is that not all shares are the same, and depending on your risk profile, one may suit you much better than the other.

Look, when a company issues shares, it generally offers two main types. Common shares are the most typical—they give you voting rights on important company decisions, dividends can vary depending on how the business performs, and in case of bankruptcy, you are among the last to receive anything. But in return, you have real potential for your investment to grow if the company grows.

Preferred shares work differently. They do not give you voting rights (so forget about influencing corporate decisions), but in exchange, they guarantee more predictable and stable dividends. In a crisis, you have priority over common shareholders to recover your money. It’s like choosing between security and control.

What’s interesting is that there are variants of both. With preferred shares, you have cumulative ones that hold unpaid dividends for later, convertible ones that you can transform into common shares, and redeemable ones that the company can buy back. With common shares, some types do not have voting rights, and others come in multiple classes with different rights.

Now, which one to choose? It depends entirely on you. If you are young, have a long horizon, and can tolerate volatility, a mixed strategy of common and preferred shares could work—more common for growth, more preferred for stability. If you are close to retirement or simply seeking regular income, preferred shares are your ally. Liquidity also matters—common shares are easier to sell, preferred shares are usually harder to move.

A curious fact: if you compare the S&P U.S. Preferred Stock Index against the S&P 500 in recent years, you can clearly see how they behave differently. While the preferred index fell 18%, the S&P 500 rose 57% in the same period. That shows you the trade-off between safety and growth.

The smart strategy is to diversify. Mix common and preferred shares according to your age, risk, and goals. If you want to start, choose a regulated broker, open your account, carefully analyze the company (its numbers, sector, competition), and place your order. You can buy direct shares or even trade CFDs if your broker offers them.

The key is to review your portfolio regularly and adjust if the market changes. It’s not complicated once you understand that common and preferred shares respond to different logics—one seeks growth, the other seeks income flow. Choose according to what you need.