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
