Should You Hold Preferred Stocks?

Posted by D4L | Saturday, December 03, 2011 | | 0 comments »

It appears that Ben Bernanke is inviting you to take more risk. By pushing interest rates down to rock-bottom levels and keeping them there, the Federal Reserve Board seems to be effectively encouraging investors to redeploy cash equivalents and other low-yielding assets into riskier ones. In doing so, perhaps the Fed Chairman hopes to rekindle the animal spirits in the economy. With such low interest rates available in Treasuries and other investment-grade bonds, many investors seem to be moving into higher-yielding, riskier assets such as preferred stocks.

The question is: Do investors fully understand the risk-return dynamics of preferred stocks?
If you reach for yield in instruments such as preferred stocks in this low interest-rate environment, be sure that you invest with your eyes open. Try to imagine how investments such as these will fare in the event of rising rates, inflation or a financial crisis. That’s a preferred way to invest.

Source: Forbes

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