jt wrote:
- quote -

Preferreds are a lot more like bonds than stocks, so fit into the
fixed-income portion of a portfolio. Their behavior is similar to
corporate bonds, but they're a lot easier to buy because they're traded
on the exchanges and so can be bought in whatever quantity you want.
Just like bonds, they'd be expected to drop in price if interest rates
rise significantly. The tax advantages of dividends might offset this
but a large number of preferreds pay income that doesn't qualify for
that break. I like finding slightly depressed preferreds in companies
whose debt is rated well above junk. That way you collect an above
average yield and, if the company rebounds, some capital gain on the
preferred stock itself. But this isn't a conservative way to use them,
it's more like stock picking.

Convertibles...well, individuals can't really buy them, it's more of an
investment for institutional investors. There are funds of them of
course but to me they're an unpredictable kind of investment to buy that
way. Each one is its own beast, the conversion provisions vary quite a
bit. To me they seem better suited to start-ups and venture
capital/private equity deals. Rather than bother with the convertibles
funds I think individual investors should just split that money between
more traditional bonds & stocks.

-Tad

What are the current prospects of preferred stocks / convertible
bonds? What role should they play in a portfolio - a steadying
influence? I'm aware of various generic properties of these
instruments, but how useful are they in current low interest
environment? Wondering if they are no longer so useful, and
holdings should be cut back in favor of others... thanks