Which to choose? Deciphering the key differences between common and preferred shares

When you start investing, you face a fundamental decision: common or preferred shares? Although both represent ownership in a company, their characteristics are radically different. Understanding these differences is essential before putting your money into the market.

The fundamental gap: privileges vs. influence

Companies mainly issue two types of shares: common and preferred, each playing a different role in your investment strategy.

Preferred shares: Are for those seeking stability. They do not give you voting rights in company decisions, but in exchange, you receive fixed and more priority dividends. In case of bankruptcy, they sit ahead of common shareholders (although they do rank after creditors). Their name says it all: you have priority in payments.

Common shares: Are the classic. Here, you do have voting rights at meetings and can influence important decisions. Dividends vary according to the company’s performance—they can be lucrative in good times or null during crises. In liquidation, you are last in line.

Beyond the basics: special types of preferred shares

Preferred shares are not a single product. There are variants designed for different scenarios:

• Cumulative: If the company does not pay dividends in a quarter, they accumulate for later
• Convertible: You can convert them into common shares under certain conditions
• Redeemable: The company can buy them back as agreed
• Participating: Dividends are linked to actual financial results

This flexibility makes them attractive to investors who want to adapt to different market situations.

The rights game: what you gain and what you lose

With preferred shares you get:

• Predictable dividends, generally higher than common shares
• Priority in liquidation (after debts)
• Lower price volatility
• Security of regular income

But you lose:

• Voting rights in corporate decisions
• Limited potential for capital growth
• Reduced liquidity (harder to sell quickly)
• Sensitivity to interest rate changes

With common shares you get:

• Voting rights on strategic matters
• Significant potential for capital appreciation
• High liquidity in main markets
• Returns linked to the company’s actual success

But you assume:

• Significant price volatility
• Variable and unpredictable dividends
• Higher risk in case of insolvency
• Direct exposure to market fluctuations

Numbers don’t lie: data in perspective

To see these differences in action, the contrast between the S&P U.S. Preferred Stock Index and the S&P 500 is revealing. During a five-year period under changes in monetary policy, the preferred stock index fell 18.05%, while the S&P 500 (most common stocks) rose 57.60%. The S&P U.S. Preferred Stock Index accounts for approximately 71% of the preferred stock market traded in the United States, reflecting its significant weight in the investment ecosystem.

This contrast perfectly illustrates how both types respond oppositely to changing economic conditions.

Who should choose each one?

Common shares: If you are between 30-45 years old, with a long-term horizon and risk tolerance, looking to grow your wealth and willing to withstand market downturns, this is your place. They are ideal for those in early or mid stages of their financial career.

Preferred shares: If you are close to retirement, need regular income, prefer to sleep peacefully without market worries, or simply want a balanced portfolio, preferred shares are your option. Many conservative investors use them to diversify and stabilize their portfolio.

How to start: practical steps

1. Choose your broker: Find a regulated and reliable platform with access to both types of shares
2. Open your account: Complete personal and financial data, make your first deposit
3. Analyze the business: Study the numbers, sector, and prospects of the target company
4. Execute your order: From the broker, select between “market” or “limit” orders according to your strategy
5. Diversify: Mix both types to balance risk and return

You can also trade CFDs on these shares, negotiating them without physically owning them—though this depends on your broker and available liquidity.

The winning strategy: smart combination

True mastery lies not in choosing one or the other, but in combining them according to your profile. A mixed portfolio including common and preferred shares reduces volatility while maintaining growth potential. Periodically review your investment and adjust as markets evolve.

The choice between these types of shares is not black or white—it’s a personal decision based on your age, goals, risk tolerance, and time horizon. The important thing is to understand exactly what you are buying and why.