I have been reading about investments and was surprised to discover that not all stocks are the same. Many believe that buying common stocks is the only option, but the reality is that there are several types with completely different rights.

Basically, companies issue two main categories: common stocks and preferred stocks. The difference is quite important if you want to understand where you're putting your money.

With common stocks, you have voting rights on important company decisions, such as electing directors. The upside is that if the company does well, your profits can be significant. The downside is that dividends vary depending on how the company performs, and in case of bankruptcy, you are among the last in line to recover anything.

Preferred stocks work differently. They generally do not give you voting rights, but in exchange, you receive more stable and predictable dividends, almost like fixed income. In bankruptcy, you have priority over common shareholders. The problem is that your growth potential is limited compared to common stocks.

There are interesting variants within preferred stocks. Cumulative preferred stocks accumulate unpaid dividends from one year to the next. Convertible preferred stocks can be transformed into common shares under certain conditions. Redeemable preferred stocks can be repurchased by the company. Each has its specific purpose.

Voting rights are perhaps the clearest difference. Common stocks allow you to vote on important corporate matters. Preferred stocks typically do not. However, preferred stocks have guaranteed priority in dividend payments.

Choosing between one or the other depends on your profile. If you seek long-term growth and can tolerate volatility, common stocks are your option. If you prefer regular and stable income, especially if you're close to retirement, preferred stocks make more sense.

Liquidity also varies. Common stocks are generally easier to buy and sell on major markets. Preferred stocks can be more restrictive, with redemption clauses that complicate selling.

Looking at historical performance, the S&P U.S. Preferred Stock Index fell 18.05% over five years, while the S&P 500 rose 57.60% in the same period. This clearly illustrates how they behave differently depending on market conditions and interest rate changes.

The smart strategy is to mix both. Some investors combine common stocks for growth with preferred stocks for stability. That way, you reduce risk while maintaining potential gains.

If you want to start investing in common or preferred stocks, the process is similar: find a regulated broker, open an account, thoroughly analyze the company you're interested in, and place your order. Some brokers even offer CFDs on these stocks if you prefer not to hold them physically in your portfolio.

The important thing is to understand that each type of stock has its place. It's not that one is better than the other; they simply serve different objectives. Common stocks are for those who want to participate in business growth. Preferred stocks are for those seeking predictable income streams. Knowing this difference is fundamental before you start investing.