## Your investor profile determines which type of stock to choose

Are you someone seeking stable monthly income or do you prefer to bet on appreciation? This question defines whether you should focus on preferred or common stocks. Each responds to a different financial strategy, and choosing poorly can sabotage your goals.

## Preferred Stocks: Predictable Income for Conservative Investors

Preferred stocks function as a hybrid between bonds and stocks. Their main feature is offering **dividends with a fixed or pre-established rate**, generally higher and more predictable than common stocks. For investors nearing retirement or in capital preservation phases, this provides security.

### How they work in practice

When a company faces difficulties, preferred stockholders receive their dividends **before common shareholders**. Additionally, in case of bankruptcy, they have priority in recovering their investment (although always after creditors). However, this comes at a cost: **they usually do not grant voting rights** in corporate assemblies, limiting your influence on business decisions.

### Available variants

There are multiple types tailored to different needs: cumulative (accumulate unpaid dividends for future periods), convertible (convert into common shares under certain conditions), and redeemable (the company can buy them back). Some link dividends directly to financial results, others include protective clauses against specific events.

### What you should know: real limitations

Their growth potential is **significantly lower** than that of common stocks, mainly because their returns depend on fixed interest rates. In inflationary environments or rising rates, they lose attractiveness. Also, they often have **low liquidity**: selling them quickly can be difficult if there are market restrictions or redemption clauses.

## Common Stocks: Exponential Growth with Greater Volatility

Common stocks represent direct ownership in the company. Their power: **virtually unlimited potential for appreciation** if the company prospers. Unlike preferred stocks, all relevant rights are present here.

### Rights and flexibility

As a common shareholder, **you participate in corporate decisions** through voting at meetings. The dividends you receive vary according to company profitability—they can be generous in boom years or nonexistent during crises. In case of liquidation, you wait your turn: creditors are paid first, then bondholders, then preferred shareholders, and finally you.

### Why they attract financial entrepreneurs

Volatility is not a flaw, but a feature. Prices fluctuate based on business performance and market conditions, but this very volatility creates opportunities. A patient investor who buys on dips and waits for recoveries can multiply their capital. Additionally, common stocks enjoy **high liquidity** in main markets, allowing quick entry and exit.

### The reality of risks

Not everything is gold: if the company fails, you lose more. Without priority protections like preferred stocks, your recovery in insolvency is marginal. Dividends can be cut abruptly, especially in cyclical sectors or during economic recessions.

## Direct comparison: which to choose based on your situation?

**For early or mid-stage investors:** Common stocks are your allies. You have time to recover from market dips and benefit from long-term compound growth. The goal is to multiply your wealth, not live off it.

**For retirees or capital preservers:** Preferred stocks offer what you need: predictable, measurable income flow. You sacrifice exponential growth potential but gain peace of mind and predictable budgeting.

**For a balanced strategy:** Many sophisticated investors combine both. They use common stocks for growth (60-70% of the portfolio) and preferred stocks for stability (30-40%). This way, they reduce volatility without completely sacrificing appreciation.

## Data contextualizing this distinction

During a recent five-year period, the S&P U.S. Preferred Stock Index (which accounts for approximately 71% of the preferred stock market in the U.S.) fell 18.05%, while the S&P 500 rose 57.60%. This gap perfectly illustrates the difference: preferred stocks protect during crises but lose in bullish rallies. Common stocks do the opposite.

## Concrete steps to get started

**1. Choose your broker:** Find a regulated, reliable platform with access to both types of stocks.

**2. Open an account:** Register your personal and financial data; make your first deposit.

**3. Study before acting:** Analyze the company (numbers, sector, competition) before committing.

**4. Place your order:** From the platform, select "market order" (current price) or "limit order" (price you set). Some brokers also offer CFDs on these stocks, allowing positions without physical ownership.

**5. Maintain discipline:** Diversify between both types, regularly review your portfolio, and adjust your strategy according to market changes.

## The practical conclusion

Common and preferred stocks are not competitors but complements. Your choice should not be "one or the other," but **how much of each** depending on your age, risk tolerance, and financial goals. The numbers speak clearly: over five years, the S&P 500 nearly tripled the return of the preferred index, but was also more volatile. Choose wisely based on where you are in your investor journey.