Choose Your Action: Preferred vs Common, Which Fits Your Profile?

The big question every investor asks is simple: preferred or common stocks? Both exist in the market, but they serve completely different strategies. It’s not just a technical detail; it’s the difference between seeking stability or growth.

What You Need to Know in 30 Seconds

Common Stocks: They are active voting rights. They give you decision-making power in the company, dividends that rise and fall with results, and the potential to make significant money if the company grows.

Preferred Stocks: They are the secure flow. You don’t vote, but you receive more stable dividends, and in bankruptcy, you have priority over common shareholders to recover your money.

The Real Gap: Market Analysis

The numbers speak clearly. In five years, the S&P 500 grew by 57.60%, while the S&P U.S. Preferred Stock Index (which represents approximately 71% of the preferred stock market in the U.S.) fell by 18.05%. The reason? Preferred stocks are hypersensitive to interest rate changes, almost like bonds. When rates go up, their prices go down. Common stocks, on the other hand, respond more to business performance.

Breaking Down Each Type

Common Stocks: High Risk, High Potential

• Voting rights: You have a voice in key decisions (such as electing directors, approving strategies)
• Dividends: Variable and based on actual profits. Generous in good years; may not exist in bad years
• Liquidity: High. You can sell quickly without issues
• In bankruptcy: You are among the last to get paid (after debts and preferred shareholders)
• Appreciation: Directly linked to corporate success

Ideal for: Young people or those in accumulation phase, who can tolerate volatility over years.

Preferred Stocks: Stability with Nuance

There are interesting variants:

• Cumulative: If you don’t receive a dividend in a year, it accumulates for later
• Convertible: You can convert them into common stocks under certain conditions
• Redeemable: The company can buy them back
• Participating: Your dividend increases if the company does very well

Main features:

• Voting rights: Usually null
• Dividends: Fixed or pre-established rate, more predictable
• Liquidity: Limited compared to common stocks
• In bankruptcy: You have priority over common stocks but lose to creditors
• Appreciation: Low, mainly influenced by interest rates

Ideal for: Retirees or conservative investors who need regular income.

The Truth Table

How to Start Trading

The process is straightforward:

1. Choose a regulated broker: Look for reliable and transparent platforms
2. Open an account: Complete personal and financial data
3. Define your strategy: Are you seeking regular income or growth? That determines which type to choose
4. Place orders: From the platform, choose between market order (current price) or limit order (your price)

Pro tip: Some brokers offer CFDs (Contracts for Difference) on these stocks, allowing you to speculate without physically owning the securities. Check what’s available on your platform.

Strategy According to Your Profile

If you’re aggressive: Common stocks are your ally. They seek long-term capital growth in companies with expansion potential.

If you’re conservative: Preferred stocks offer the ideal mix of predictable income and protection in times of crisis. Many investors use them to diversify portfolios, balancing risk and return.

If you want the best of both worlds: Combine both types. Preferred stocks act as a stable anchor; common stocks as a growth engine.

The Final Verdict

The choice isn’t “one is better than the other.” It’s what you need at this moment in your financial life. Preferred stocks gained relevance during interest rate hikes, but their 18.05% decline over five years contrasts with the 57.60% boom of the S&P 500, reminding us that even “safe” investments have hidden risks.

The important thing: understand what type of shareholder you want to be. Someone who influences decisions or someone who receives steady income? A growth seeker or a capital protector? Answer that, and the type of preferred or common stocks you need will become obvious.