Are you looking to garner higher yields than investment-grade bonds provide but still want a degree of safety?
If so, you might consider preferred stocks, says MarketWatch columnist Jeff Reeves
"While bond funds have done well in the past several months as rates have drifted even lower, that simply can’t last," he writes. That's because the Federal Reserve will ultimately raise short-term interest rates. Economists' consensus is for rate hikes to begin around mid-2015.
Preferred stocks are a hybrid between common stocks and bonds, Reeves explains. They are less stable than bonds but more so than common stocks. And preferred shareholders stand ahead of common stockholders as creditors.
"That can give you a bit more yield but also a bit less risk than the alternatives," he notes.
Many experts recommend going the exchange-traded fund (ETF) or mutual fund route if you decide to invest in preferreds, as they have a lot of moving parts that an investor must understand.
"Buying individual stocks requires a lot of research and time. It's best left to pros," Abby Woodham, an ETF analyst at Morningstar, told Bankrate.com
"For investors who don't have the time and desire, ETFs are a good, cheap alternative. What's the likelihood you will beat the index if you do the research? Probably low."
Reeves lists his three favorite preferred-stock ETFs: Global X SuperIncome Preferred ETF (Ticker: SPFF), Market Vectors Preferred Securities ex-Financials (PFXF) and iShares U.S. Preferred Stock ETF (PFF).
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