Recently, I was reviewing my portfolio and realized something that many investors overlook: not all stocks are the same. When I started investing, I thought a stock was just a stock, but the reality is that companies can issue different types, each with completely different rights. Today, I want to share what I’ve learned about preferred and common stocks because I believe understanding these differences is key if you want to make smart decisions.

The two main categories we find are common stocks and preferred stocks. Common stocks are the most typical and probably what you know. They give you voting rights at shareholder meetings, which means you have some influence over important company decisions. You also receive dividends, but here’s the detail: these vary depending on how well the company performs. In case the company goes bankrupt, unfortunately, you are among the last to receive any remaining assets.

Preferred stocks work differently. They generally do not allow voting, but in exchange, they offer something more valuable for certain investors: more stable and predictable dividends. If the company faces financial trouble, you have priority over common stockholders to recover your investment. This is what makes them attractive for those seeking regular income without much drama.

Now, within preferred stocks, there are interesting variants. There are cumulative preferred stocks, where if the company cannot pay dividends in a period, they accumulate for later. Then there are convertible preferred stocks, which allow you to transform them into common shares under certain conditions. There are also redeemable preferred stocks, which the company can buy back, and participating preferred stocks, where dividends are directly linked to financial results. Each one suits different investment strategies.

In terms of rights, this is where the difference between preferred and common stocks becomes more evident. Holders of preferred stocks are in an intermediate position in the corporate hierarchy: above common creditors but below bondholders. They do not have voting rights, so their influence is limited. However, in liquidation, they get paid before ordinary shareholders. Preferred dividends are usually fixed or have a pre-established rate, making them sensitive to changes in interest rates, almost like bonds.

Common stocks, on the other hand, give you power. Your voting rights are real and allow you to participate in key decisions. The growth potential is higher because the price can increase significantly if the company prospers. But here’s the risk: everything depends on the company’s performance. If things go badly, your investment can fall quite a bit. Dividends are not guaranteed and can be very variable or even null during tough times.

From my experience, common stocks attract investors with higher risk tolerance—people who can wait years to see their money grow. They are ideal if you are in an early stage of your financial life and your goal is long-term wealth accumulation. Preferred stocks, on the other hand, are for those seeking stability: retirees, conservative investors, people who want to receive regular income without having to monitor market volatility.

One thing that helped me visualize this was comparing the behavior of the S&P U.S. Preferred Stock Index against the S&P 500. This preferred stock index represents about 71% of the preferred stock market in the United States, so it’s a good thermometer. Over a five-year period, while the S&P 500 rose 57.60%, the preferred stock index fell 18.05%. This exactly reflects what I’m telling you: in an environment of changing interest rates, these two types of investments behave very differently.

If you want to get into this, the process is relatively simple. You need to find a regulated and trustworthy broker, open your account, carefully analyze the companies you’re interested in, and execute your order. You can buy stocks directly or even trade CFDs on them, depending on what your broker offers. My recommendation is to diversify: mix common and preferred stocks according to your profile. If you have risk tolerance, lean toward common stocks. If you prefer peace of mind, preferred stocks are your ally.

The important thing is that you understand what you are buying. Preferred and common stocks serve different purposes in a portfolio. It’s not about which is better, but which fits what you need at this moment in your financial life. Review your investment regularly, stay informed about how the company is doing, and adjust your strategy if the market changes. That’s what has worked for me.