Choose your type of action: The real game is in knowing how to differentiate

Here comes the truth that many investors take years to understand: not all stocks are the same. While some operate under the belief that a stock is just a stock, there are fundamental differences between common and preferred shares that can completely change your investment strategy.

The real gap: Voting or Dividends?

Most public companies issue two main categories of shares, each playing a different role in the corporate structure.

Common Shares: They are the classic type. They give you voting power at shareholder meetings, direct participation in corporate decisions, and growth potential linked to the company’s performance. The downside: your dividends fluctuate depending on how the business performs, and in case of bankruptcy, you are among the last in line.

Preferred Shares: Here, the agreement is different. You sacrifice voting rights, but in return, you receive more stable, predictable dividends that are generally higher than those of common shares. In liquidation, your position improves significantly compared to ordinary shareholders.

Beyond the basics: Types and Variants

Within preferred shares, there are sophisticated categories. Cumulative shares guarantee that any missed dividends will be recovered later. Convertible shares offer the possibility to transform into common shares under certain conditions. Redeemable shares allow the company to buy them back. And participating shares link your dividends directly to actual financial results.

In common shares, there are also variants: some are issued without voting rights, while others operate in multi-class structures where different categories have different rights.

The hierarchy of priorities when everything goes bankrupt

In the event of company liquidation, the order is clear: creditors first, then bondholders, then preferred shareholders, and finally common shareholders. Accounting-wise, preferred shares occupy a hybrid space: technically they are equity, but regulators and rating agencies often treat them as debt if they have bond-like features.

Profitability vs. Safety: The numbers speak

Look at what happened in the US market over the last five years. The S&P U.S. Preferred Stock Index, which represents approximately 71% of the preferred segment traded in the US, experienced a decline of 18.05%. At the same time, the S&P 500 rose 57.60%.

What does this tell us? Common stocks offer volatility and explosive potential. Preferred shares act as a buffer but lose momentum in traditional bull markets.

Strategy: Who should buy each one

Aggressive investors with a long-term horizon: common stocks. They tolerate fluctuations and pursue capital growth. Typically, they are in early or mid-stages of wealth accumulation.

Conservative investors nearing retirement or in preservation phase: preferred shares. They need predictable income streams, sleep better with guaranteed dividends, and value stability over spectacular gains.

How to start your investment step by step

1. Choose a regulated broker: Reliable and authorized platform.
2. Open an account: Complete personal, financial data, and initial deposit.
3. Analyze objectives: Decide if you seek growth (common) or income (preferred).
4. Place an order: Choose between market orders or limit orders.
5. Consider CFDs: Some brokers offer contracts for difference on these shares without needing to own them.
6. Diversify: Combine both types to balance risk and return.
7. Monitor: Review periodically and adjust as your situation changes.

The conclusion that matters

Common and preferred shares do not compete; they complement each other. True sophistication lies in understanding when each makes sense within your portfolio. The numbers from the S&P reveal an uncomfortable truth: in certain market cycles, preferred shares protect while common stocks explode. Your decision depends on your financial age, risk tolerance, and what you need today: aggressive growth or reliable income.