Choose your action type: The complete guide to common and preferred shares

Did you know that not all shares give you the same rights within a company? Here’s what you need to know to invest properly.

The Two Sides of the Stock Market

When you invest in the stock market, you mainly face two options: common shares and preferred shares. Although both represent ownership in a company, they operate very differently.

Confusion between these two types is quite common among beginner investors. A first-time shareholder who buys common shares has voting power at meetings, but their dividends fluctuate. Those who choose preferred shares, on the other hand, give up that decision-making power in exchange for more predictable income.

What do you really get with each type?

Common Shares: Growth and Control

Common shares are the traditional type issued by most companies. As an owner, you participate directly in the company’s destiny.

What you gain:

• Voting rights on important business decisions (such as electing directors, approving mergers, etc.)
• Significant appreciation potential if the company grows
• Dividends that increase when the company prospers
• High liquidity for quick buying and selling in major markets
• The possibility to benefit from long-term business success

What you lose:

• If the company goes bankrupt, you are last in line to recover anything (after creditors and preferred shareholders)
• Dividends can disappear during tough times
• Price volatility can be dramatic, subject to market factors and corporate performance
• Your investment depends entirely on the economic cycle and the company’s health

Some investors opt for non-voting common shares or participate in multi-class schemes where different groups hold varying levels of control. This allows certain shareholders to preserve more power with less ownership percentage.

Preferred Shares: Stability Without Control

Preferred shares occupy an intriguing middle ground: they combine features of debt (bonds) with features of equity (shares).

What you gain:

• Fixed or pre-established rate dividends, much more predictable
• Cumulative versions that pay overdue dividends in the future
• Priority over common shareholders when the company distributes money
• In case of liquidation, you recover your investment before common shareholders
• Ideal for those needing regular income flow (such as retirees or conservative investors)

What you lose:

• No voting rights, so you do not influence corporate decisions
• Growth potential is limited, mainly affected by interest rate changes
• Liquidity is usually lower than common shares
• They may have redemption clauses that the company can execute if it suits them
• If the company performs poorly, dividends can be suspended even if they are “preferred”

Within preferred shares, there are variants: convertible (which you can transform into common), redeemable (which the company can buy back), and participating (whose dividends are linked to financial results).

Direct Comparison: Decision Table

Real Numbers: How Have They Performed Historically

The contrast between these two universes is perfectly illustrated by two major U.S. indices. Over the past five years, the S&P U.S. Preferred Stock Index (which represents approximately 71% of the preferred stock market traded in the U.S.) fell by 18.05%. Simultaneously, the S&P 500 (mainly composed of common stocks) rose by 57.60%.

This gap reflects a fundamental fact: in an environment of rising interest rates, preferred shares suffer because their fixed dividends become less attractive. Common stocks, on the other hand, thrive in cycles of economic growth and favorable monetary policies.

What should your strategy be?

If you are a high-risk profile investor

Common shares are your terrain. You are in early or mid stages of your financial life, can withstand wild fluctuations, and your goal is to multiply capital through long-term business growth. The broad time horizon allows you to overcome negative market cycles.

If you seek to preserve capital and income

Preferred shares fit perfectly. You are in retirement or transition phase, need a regular and predictable flow, and prefer to sleep peacefully knowing your income is more stable. The sacrifice of growth potential is compensated by dividend certainty.

The smart strategy: Diversification

What’s the best option? Combine both. A balanced portfolio mixes common shares (for growth) with preferred shares (for stability). This reduces your overall risk while maintaining exposure to profitability opportunities.

How to start: Practical steps

1. Choose your broker
Look for a regulated platform with a good reputation. Gate.io and other brokers offer access to both types of instruments.

2. Open your account
Fill in personal and financial data. There is probably an initial deposit.

3. Research before buying
Analyze the company’s numbers, sector, competition, and prospects. Don’t buy just because it sounds good.

4. Execute your order
You can use market orders (buy at the current price) or limit orders (set the maximum price you pay). Some brokers also offer CFDs on stocks, allowing you to trade without actually owning the asset.

5. Monitor and adjust
Your portfolio is not “set and forget.” Review it periodically and readjust according to market changes and your goals.

The summary you need

Common and preferred shares are not competitors; they are different tools for different objectives. Common shares give you control and growth potential but with volatility. Preferred shares offer predictable income and security but limit your influence and profitability.

The market needs both. Young and aggressive investors drive demand for common shares. Institutions, retirees, and cautious investors use preferred shares to stabilize portfolios.

The question is not “which is better?” but “which do I need now?” The answer determines your entire investment strategy.