What is the difference between common shares and preferred shares?

Preferred Stock

Preferred stockholders have a greater claim to a company's assets and earnings. This is true during the company's good times when the company has excess cash and decides to distribute money to investors through dividends. The dividends for this type of stock are usually higher than those issued for common stock. Preferred stock also gets priority over common stock, so if a company misses a dividend payment, it must first pay any arrears to preferred shareholders before paying out common shareholders.

Common stock

Common stock represents shares of ownership in a corporation and the type of stock in which most people invest.

Common stock tends to outperform bonds and preferred shares. It is also the type of stock that provides the biggest potential for long-term gains. If a company does well, the value of common stock can go up. But keep in mind, if the company does poorly, the stock's value will also go down.