I’ve noticed that many new investors confuse these two types of shares, so it’s worth clearly explaining the difference between common and preferred shares.

Basically, companies issue two main categories. Common shares are the ones everyone knows: they give you voting rights at shareholders’ meetings, you receive dividends (although they vary depending on how the company performs), and in the event of bankruptcy, you’re among the last to get paid. Preferred shares work differently: generally, you don’t vote, but in return you receive more stable and predictable dividends, and in a liquidation you have priority over common shareholders.

The difference between common and preferred shares is quite clear if you look at it this way: preferred shares are more like a bond with stock-like features, while common shares are pure ownership in the company.

Within preferred shares, there are some interesting variants. There are cumulative preferred shares, where dividends that weren’t paid accumulate for later payment. Convertible preferred shares allow you to convert them into common shares under certain conditions. Redeemable shares can be repurchased by the company. And participative preferred shares link your dividends directly to the company’s financial results.

For common shares as well, there are different types. Some companies issue shares without voting rights, giving you returns but without influence. Others use multi-class systems, where each class has different rights, allowing certain groups to maintain control with fewer shares.

If you look at it in terms of financial hierarchy, in the event of bankruptcy, creditors get paid first, then bondholders, then preferred shareholders, and finally common shareholders. That’s why the risk is higher with common shares.

The difference between common and preferred shares also shows up in liquidity. Common shares are usually very liquid in major markets, making it easy to enter and exit. Preferred shares are less liquid, with sale restrictions and redemption clauses that can complicate things.

When it comes to growth potential, common shares come out ahead. If the company grows, your share increases in value. Preferred shares are more limited because their dividends are fixed, so they mainly rise when interest rates fall.

To choose between the two, it depends on your profile. If you’re young, you have a long time horizon, and you’re looking for growth, common shares make sense. You accept volatility in exchange for the possibility of significant gains. If you’re near retirement or prefer regular income, preferred shares are more comfortable. You know what to expect each quarter.

An interesting fact: the S&P U.S. Preferred Stock Index, which represents approximately 71% of the preferred stock market in EE.UU., fell 18.05% over a five-year period, while the S&P 500 rose 57.60%. This clearly shows how they behave differently depending on the interest-rate environment.

If you want to buy either of these types, the process is simple: choose a regulated broker, open an account, analyze the company thoroughly (its numbers, sector, and competition), and place your order. You can place market orders (current price) or limit orders (you set the price).

My recommendation: don’t go all in or do nothing. Mix both. Some common shares for growth, some preferred shares for stability. This reduces risk and gives you both potential gains and an income stream. And review periodically, because the market changes and your strategy should adapt as well.