Recently, someone asked me about the difference between common and preferred shares, and I realized that not everyone who invests is familiar with this topic. So I decided to share what I’ve learned about it.

Basically, when we talk about common shares, we’re referring to the most common type issued by companies. But here’s the interesting part: not all shares are the same. A company can issue different types, each with different rights.

Common shares give you voting power at meetings and the possibility of receiving dividends that vary depending on how well the company performs. The downside is that if the company goes bankrupt, you are among the last in line to recover your money. But in exchange, you have higher growth potential and much more liquidity to buy and sell quickly.

Then there are preferred shares, which work differently. They don’t give you voting rights in company decisions, but in return, you receive more stable and predictable dividends, almost like fixed income. In case of bankruptcy, you have priority over common shareholders. They are ideal if you’re looking for regular income flow with less risk.

Within preferred shares, there are interesting variants. There are cumulative ones, where unpaid dividends accumulate for later payment. Convertible ones allow you to transform them into common shares under certain conditions. And redeemable ones, which the company can buy back whenever it wants.

Now, which one to choose? It depends a lot on your profile. If you’re young and have a long-term horizon, common shares allow you to take advantage of market growth, even if you have to endure volatility. If you’re close to retirement or simply prefer predictable income, preferred shares are your ally.

A revealing fact: if you compare the S&P U.S. Preferred Stock Index with the S&P 500 over the last five years, you see how preferred shares fell 18.05% while the S&P 500 rose 57.60%. This exactly reflects what I’m saying: greater stability but less growth in preferred shares.

If you want to start investing in either of these types, the process is simple. You need to choose a regulated broker, open an account, carefully analyze the company, and execute your order. Some brokers even let you trade CFDs on these shares without actually owning them.

My personal advice: don’t put all your eggs in one basket. Mix common and preferred shares according to your situation. Those seeking growth can lean more toward common shares, but there’s always room for preferred shares as a risk buffer. And review your portfolio regularly, because markets change and your strategy should adapt too.