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What is my FA saying?
Old 12-20-2012, 05:14 PM   #1
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What is my FA saying?

My FA asked if I wanted to move some funds to a Prefered Stock yelding 5%.

Does this mean I would make 5% per year on the amount I'm investing in this stock before a 1% fee? How do I know which time period it's for and is there any advantage in this investment.

I know most are thinking, well why not ask your advisor these questions? Well it's complicated since we have placed them on probation and I'd rather not get into it since this isn't what this thread is about.

I'd appreciate some clarification.
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Old 12-20-2012, 05:53 PM   #2
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Google is your friend.
Preferred stock - Wikipedia, the free encyclopedia
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Old 12-20-2012, 05:57 PM   #3
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Originally Posted by My Dream View Post
My FA asked if I wanted to move some funds to a Prefered Stock yelding 5%.

Does this mean I would make 5% per year on the amount I'm investing in this stock before a 1% fee? How do I know which time period it's for and is there any advantage in this investment.

I know most are thinking, well why not ask your advisor these questions? Well it's complicated since we have placed them on probation and I'd rather not get into it since this isn't what this thread is about.

I'd appreciate some clarification.
He or she is your financial advisor, why not ask them? That does not guarantee an accurate answer, but whatever any of us might say is guaranteed to be inaccurate. Better yet, why not fire this character, reada book or two, and DIY.

I think it is Swedroe who has a book where he addresses all sorts of alternate investments. He demonstrates that most of them mainly stink, especially for unsophisticated investors.

The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly (Bloomberg): Larry E. Swedroe, Jared Kizer: 9781576603109: Amazon.com: Books

Ha
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Old 12-20-2012, 05:58 PM   #4
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Thanks for the reply braumeister, I Googled it before starting this thread and since I got lost in the translation I thought I'd ask in this forum. Ya see I had to Google many specific in the original Google search and it got overwhelming.
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He or she is your financial advisor, why not ask them? Better yet, why not fire this character, reada book or two, and DIY.
I already answered why I didn't ask my FA and as of today they have been fired. I also read a couple books and still didn't get any further ahead in understanding investments. It wasn't for lack of trying.

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Old 12-20-2012, 06:08 PM   #5
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I had to Google many specific in the original Google search and it got overwhelming.
The problem is that you're asking a complicated question about a complicated issue, and the answer is going to be complicated. You also provided no details about the preferred stock(s) in question, so there is no way you can get anything approaching an accurate answer, let alone a simple answer.
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Old 12-20-2012, 06:12 PM   #6
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My FA had also suggested Preferred Stocks, so I book a book on it besides researching online and have them consisting of 5% of my portfolio. FYI, Vanguard charges a flat fee of $37.00 per purchase. I would recommend only that you understand about these (and any other investment you make) and only go where you are comfortable and understand the investments.
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Old 12-20-2012, 06:21 PM   #7
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If preferred stock is what one wants, how about an ETF to get some diversification?

I have never had preferred stocks in any form, but there is a couple of ETF that have dividend yields of greater than 6%. However, they consist mostly of financial stocks. Perhaps there are not too many corporations outside of the financial sector that issue preferred stocks.

See: Preferred Stock ETFs: Not Created Equal - Seeking Alpha
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Old 12-20-2012, 07:01 PM   #8
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The problem is that you're asking a complicated question about a complicated issue, and the answer is going to be complicated. You also provided no details about the preferred stock(s) in question, so there is no way you can get anything approaching an accurate answer, let alone a simple answer.
The only other information that I can give is that it was TransAtla, but these have been offered several times under other names. If it's a complicated question I don't believe I will likely understand the complicated answer.
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My FA had also suggested Preferred Stocks, so I book a book on it besides researching online and have them consisting of 5% of my portfolio. FYI, Vanguard charges a flat fee of $37.00 per purchase. I would recommend only that you understand about these (and any other investment you make) and only go where you are comfortable and understand the investments.
Researching online is of no value since I don't understand the basics. In other words, I'm a true Newbie. I understand Vanguard is somewhat new to Canada, is this correct?
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If preferred stock is what one wants, how about an ETF to get some diversification?
The only thing I know about ETF's is that it means exchange traded fund: a mutual fund that is traded on a stock exchange, and here I thought only stocks were traded on a stock exchange.

I thank everyone for their reply, but it appears I'm way over my head.
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Old 12-20-2012, 07:31 PM   #9
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I just went on TD Waterhouse's site and did some research on TransAlta. It is a nonprofitable power company with a negative return on investment and a dividend rate of over 7% on common shares. Analysts are rating common shares as "hold" but indicated that there were some positive strategic initiatives going on. S&P says "buy". There was nothing there about preferreds.

I don't own any of this stock and based on what I saw of the fundamentals, I don't plan to buy any. I previously owned some preferreds, mainly of big banks, and their dividends were ~6%. My FA recently sold these based on asset allocation decisions that we made.
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Old 12-20-2012, 07:56 PM   #10
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I couldn't find anything on its preferred either, but did confirm its existence. However, of its common stock, Schwab rates it a C (from A to F), and S&P rates it a 4-star (scale of 1 to 5). The common stock has a dividend yield of 7.81%!

The negative earning was due to a special charge of 612 millions in Q2 (I do not know what for). Obviously, this accounting maneuver was expected, as S&P says that it is a "well-managed company" and views its expansion program as "positive". FWIW.
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Old 12-20-2012, 08:19 PM   #11
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I know most are thinking, well why not ask your advisor these questions? Well it's complicated since we have placed them on probation and I'd rather not get into it since this isn't what this thread is about.
IMO, it (the bolded section) is at the core of what this thread is about.

You are trying to find out something about some investment that you don't understand. You can't ask your FA, because you have them on 'probation'?

No better example of why you should learn the very basic, easy steps to DIY. There is no need to invest in anything you don't understand, and it is very simple to understand basics like 'index fund', or 'target fund'.

Wait a minute, this was all starting to sound very deja vu...

financial planner....how to choose one

Hmmm, fired 14 advisers? now one on 'probation'? So you've got an adviser, but you still have to figure this out on your own? How is any of this easier than DIY with a few index funds? Awwww.... never mind...

-ERD50
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Old 12-20-2012, 08:25 PM   #12
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Preferred stock: Imagine a bond that never matures and if the company that issued it defaults or goes out of business you will probably get nothing.
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Old 12-20-2012, 08:26 PM   #13
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I appreciate both Meadbh and NW-Bound for sticking with this thread and doing some research.

I was under the understanding that this prefered stock was only available to TD PIA clients, I may have been mistaken. Based on the"dividend rate of over 7% on common shares"and "The common stock has a dividend yield of 7.81%", I'm confused. This stock was offered 4 months ago and I bought some, does this mean I'm locked into the 5%?

As a newbie I wonder why "Schwab rates it a C (from A to F)" since I consider, between 7-8% an above average return.


Again, thanks for the research information as I had no idea where to find it nor what to look for. The reson for this thread is it came up in a conversation between my FA and I and I was lost halfway, and it wasn't important enough to continue since there were more pressing things to deal with.
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Old 12-20-2012, 08:29 PM   #14
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Absolutely you should NOT invest in this. A concentrated investment in a single preferred issue may be a wise investment for a very sophisticated investor with ample otherwise diversified investments. If you are asking this question, then clearly you are NOT in that group. Stay away. And fire the "advisor" who suggested it.
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Old 12-20-2012, 08:39 PM   #15
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I believe the only sensible path for you is to stay away. Preferreds can at rare times be excellent speculations. But overall, they are a bad deal most of the time, and an especially bad deal at a time when interst rates are at generational lows. Most straight (nonconvertible) preferreds are perpetual- ie., they have no stated maturity date when you get your money back. This contributes to very long duration, the opposite of what a person wants in times of exceptionally low (and manipulated ) interst rates.

From Wikipedia:
In the United States there are two types of preferred stocks: straight preferreds and convertible preferreds. Straight preferreds are issued in perpetuity (although some are subject to call by the issuer, under certain conditions) and pay a stipulated rate of interest to the holder. Convertible preferreds—in addition to the foregoing features of a straight preferred—contain a provision by which the holder may convert the preferred into the common stock of the company (or, sometimes, into the common stock of an affiliated company) under certain conditions (among which may be the specification of a future date when conversion may begin, a certain number of common shares per preferred share or a certain price per share for the common stock).
There are income-tax advantages generally available to corporations investing in preferred stocks in the United States. See Dividends received deduction.
But for individuals, a straight preferred stock, a hybrid between a bond and a stock, bears some disadvantages of each type of securities without enjoying the advantages of either. Like a bond, a straight preferred does not participate in future earnings and dividend growth of the company, or growth in the price of the common stock. However, a bond has greater security than the preferred and has a maturity date at which the principal is to be repaid. Like the common, the preferred has less security protection than the bond. However, the potential increase in the market price of the common (and its dividends, paid from future growth of the company) is lacking for the preferred. One advantage of the preferred to its issuer is that the preferred receives better equity credit at rating agencies than straight debt (since it is usually perpetual). Also, certain types of preferred stock qualify as Tier 1 capital; this allows financial institutions to satisfy regulatory requirements without diluting common shareholders. Through preferred stock, financial institutions are able to gain leverage while receiving Tier 1 equity credit.

Preferred stock - Wikipedia, the free encyclopedia

What is wrong with an ordinary 60:40 50:50 or 40:50 allocation using standard vehicles such as Vanguard index mutual funds or ETFs?

Someone on this board can explain to you what to do in 5 minutes. (Not me, as this is not an area of interest for me.)

Ha
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Old 12-20-2012, 08:48 PM   #16
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I've been a fan of preferred stocks for close to 10 years. As mentioned, they are not all created equal. If you take time to get to know and understand them, they can be a nice addition to your portfolio, but research is important. Quantum Online QuantumOnline.com Home Page is a good starting point.

TransAlta has three different preferred stock issues and they trade on the Toronto Stock Exchange.
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Old 12-20-2012, 08:54 PM   #17
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Again, thanks for the research information as I had no idea where to find it nor what to look for. The reson for this thread is it came up in a conversation between my FA and I and I was lost halfway, and it wasn't important enough to continue since there were more pressing things to deal with.
My Dream, if you are a TD customer you have access to the same research data as I do. Click on Markets and Research. I did find the preferred shares; here is the link.

https://www.tdwaterhouse.ca/markets-...kets/index.jsp

I'm glad to help on a one time basis, but since I am not getting a commission, I suggest that you use the resources available to you and start doing your own research.
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Old 12-20-2012, 09:09 PM   #18
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I appreciate both Meadbh and NW-Bound for sticking with this thread and doing some research.

I was under the understanding that this prefered stock was only available to TD PIA clients, I may have been mistaken. Based on the"dividend rate of over 7% on common shares"and "The common stock has a dividend yield of 7.81%", I'm confused. This stock was offered 4 months ago and I bought some, does this mean I'm locked into the 5%?

As a newbie I wonder why "Schwab rates it a C (from A to F)" since I consider, between 7-8% an above average return.

Again, thanks for the research information as I had no idea where to find it nor what to look for. The reson for this thread is it came up in a conversation between my FA and I and I was lost halfway, and it wasn't important enough to continue since there were more pressing things to deal with.
Well, I can't speak for Meadbh, but as I am an early retiree with nothing else to do at the moment, and when someone mentions some good-yielding stocks, it piques my curiosity. I LOVE money.

I do not know if you got the preferred or the common stock, but as I could not find anything about the former, I can only talk about the latter.

TAC had been trading about $22/share until it dropped to $16 in June this year. It is now at $15. S&P upped its rating to a Buy (4-star) in Oct, and cited some positive development. I do not have Schwab's report on hand at the moment to see the rationale for the C rating.

It's quite common for different agencies to differ on their ratings. It's the investor's job to see who makes more sense. Or it may be that Schwab's analyst has not gotten around to revise his report. The yield of 7.81% is excellent, but of course the question is if the corp can sustain the profitability in the future to keep paying that dividend.

This yield is a lot higher than those of the US power companies, of which I hold some. The 7.81% vs. the typical 4% of course gets my attention. But, but, but if something sounds too good, well, you know there might be a gotcha in there somewhere.

Did I say I LOVE money? I may look a bit more into the common stock for myself, and wouldn't bother with the preferred.
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Old 12-20-2012, 09:41 PM   #19
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After thinking more about this thread and looking at the company in question, I'd say the FA may have been too quickly judged. From just some basic research, the FA may have suggested a very conservative and relatively safe income investment for his/her client. Since I don't know the OP's investment objectives, this may have been a very appropriate recommendation. Having said that, I also assume the "firing" of the FA was based on more than just this one situation.
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Old 12-20-2012, 09:46 PM   #20
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Did I say I LOVE money? I may look a bit more into the common stock for myself, and wouldn't bother with the preferred.
I was thinking the same thing

Schwab is negative on the momentum, B on fundamentals, risk and C on valuation. Preferreds are not available in US. Been around since 1911, paying dividends since 1956. Dividend has not grown much but is stable. Below $15 looks to be a good entry point. May have add this to the list...

http://www.transalta.com/investor-ce...nd-information
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