Why I Prefer to Avoid Preferred Shares | Common Sense Investing 

I think the safest strategy is to diversify investments. Like spreading investments across different asset classes, like bonds, real estate, and international stocks, they can reduce the impact of a market meltdown.

A lot of folks downplay the role of advlsors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for licensed advisors and came across someone of utmost qualifications. She's helped grow my reserve notwithstanding inflation, from $275k to $850k.

This is definitely considerable! think you could suggest any professional/advisors i can get on the phone with? I'm in dire need of proper portfolio allocation.

Angela Lynn Schilling is her name. She is regarded as a genius in her area and works for Empower Financial Services. She’s quite known in her field, look-her up.

Thank you for the lead. I searched her up, and I have sent her a message. I hope she gets back to me soon.

Ultimately you're looking at something halfway between shares and bonds and the returns will reflect that. Rich chumps like to invent new and exotic securities as if that will somehow make both parties richer.

Thank you.

Thanks for another thoughtful comment. Why would you choose HPR?

I guess, only because the Horizons managers, which essentially outsources most of the management to Fiera Capital, have shown themselves to be good managers over the medium-term. I realize this would go against a truly passive investment philosophy and investment portfolio, but I'm just not sure that building a passive index around preferred shares really makes a lot of sense (i.e., preferred share index funds/ETFs forced to buy a basket of preferred shares at designated times). I guess, in theory, it probably shouldn't matter; I just don't know if there's the same level of really long-term academic research in preferred share index fund returns that there is over, say, the S&P 500 index or S&P TSX Composite index? If some really good research in this area does exist, I'd love to take a look at it. That being said, I love the idea behind preferred shares and they definitely have their advantages from a tax standpoint, but people need to realize that, like you said, they're essentially taking near equity risk for bond-like returns. I guess...upon reflection, if I were really actually going to buy any preferred shares, I'd probably buy a Canadian credit union's "preferred-like" shares. I call them "preferred-like" because while they're similar to a company's preferred shares, the dividends from them are treated as regular interest income. They don't have the liquidity that some publicly-traded preferred shares have, can be difficult to redeem (i.e., limited to the amount you may redeem each year and subject to credit union board approval), but they do (usually) have a fixed redemption price. Still, the dividends are usually non-cumulative which, as I understand it, is just a fancy way of saying, "any time we opt not to declare (pay) a dividend, we're not obligated to pay those past undeclared (unpaid) dividends." Speaking of which, possible other good topics: (1) REITs and (2) unsecured debentures, what they are, and why they're more like preferred shares than bonds (and why they're also the preferred shares' "ugly cousin," to the company for sure (but also to the investor/potential investor) because I'm guessing they're treated as 'debt' on its balance sheet). Related question: what are your thoughts on equally weighted ETFs as opposed to traditional market cap weighted ETFs, do you consider that to be "active management"? I understand there's different schools of thought in this area and, if it is (I can see both sides), it seems to be a very, very minor/"low key" form of active management, no? Cheers, Doug

You are correct that there is not the same level of evidence for market efficiency in preferred shares. I wouldn't add preferred shares to my portfolio but I can see the argument for active management in that space. I don't care much for equal weighting, but weighting based on factors is sensible to me. That is, increasing weights based on certain characteristics of stocks like size (small stocks) and relative price (value stocks). Stocks with those characteristics tend to have better long-term performance so over-weighting them makes sense. It does blur the lines between active and passive a bit, but even with market cap weights someone had to decide what goes in the index. Based on that there is no true passive.

Thanks again for taking the time to reply, Ben. Always appreciate your thoughts re: preferred shares and whether equal weighting constitutes "active management". It sounds like you would not take that somewhat ultra-conservative view that it constitutes "active management". It also sounds like that you DO use, at least occasionally, certain single factor "smart beta" ETFs. I think that's definitely a degree of "active management," but I agree that it's relatively minor in comparison to someone actively picking certain individual stocks based on certain characteristics. Would it be fair to say that you DON'T like certain pre-built multi-factor ETFs (i.e., Vanguard Canada has a few of them)? I personally tend to steer away from all "smart beta" ETFs, though if I were to use them, I'd definitely go with a single-factor one. I just can't see how a multi-factor ETF would ever outperform its benchmark. :) Cheers, Doug

I use, for myself and my clients, products from Dimensional Fund Advisors. They are multi factor, but nothing crazy. Size, relative price, and profitability. As far as I know they are the only company implementing academic research in a way that makes sense.

Index funds or low cost index etfs.

Really, you do realize Major banks issue them as well as highly rated insurance companies.

Yes it does reduce the interest rate sensitivity. Here is an article detailing why there is still enough risk in the asset class to make its place in a portfolio questionable (in my opinion) www.pwlcapital.com/volatility-of-fixed-reset-preferred-shares/

Thanks. I mean sure, buying at par is a bad idea. What about buying the cheap share at its worst possible time when it reset to the 0% yield(plus the small spread)? The cheapness of it guaranties a decent minimum return, it being below par guaranties profits on call, as long as the credit rating of the issuer is solid. Forgive my insistence I find regular stocks too volatile and exciting for me, I am looking for the boring 5% return. Also sorry for the late reply, I was not notified by youtube of your reply for some reason.

NO, just buy high quality names. The ETF will bleed you over the years, too expensive

But you’d be taking stock-like risk. You would expect better risk adjusted returns from stocks or a mix of stocks and bonds than from prefs.

What about a common, perfered mix. Just playing devils advocate I really want to dig deep into this. I’m all common equity’s now, however once I hit my 50s I’ll probably start shifting it a bit I’ve considered perfereds over bonds due to there tax advantage with me using a normal brokerage account vs retirement and high yields.

I’d still go total market common stocks with a mix of bonds as needed.

Probably, as the preferred will absorb more of the free cash flow for its dividend ahead of the common dividend.

Same PFF... just sit there and get paid

@@rahulparikh6183 Works every time!

I LOL with this comment.

@@lindabutt1481 It's good stuff!

What’s ur average annual return track record of preferred portfolio for past decade?

Well, maybe one day you will change your mind about sharing your joints.

I would be happy to share a joint with you and keep the discussion focused on finance. :)

@@RicoCordova there's a podcast idea in there somewhere.

@@BenFelixCSI Definitely, but I think Joe Rogan has the monopoly on this idea. haha

Not for strictly finance discussions. We can call it high finance.

Enjoy: www.cbsnews.com/news/why-you-should-avoid-preferred-stocks/

@@BenFelixCSI I was a licensed trader and analyst, he is right generally. But like you said in some cases they are fantastic options. It really depends on the company and issue. ALSO from my understanding there are very few Perpetual preferreds in the USA

Can you share the preferred shares you bought. I am a canadian investor and only know the canadian market well?????

@@stevenobinator2229 as far as I know, most preferred issues are perpetual. They do have call dates, but they are not "mandatory" redeemed. Only a handful of preferreds have mandatory redemption dates. OXLC and ECC have mandatory preferreds for example.

@@BenFelixCSI What does the article you shared prove exactly? It actually compliments his point. The keyword is "it depends".

Sure. Another reason not to touch them!

@@BenFelixCSI Well, they pay out real cash every quarter.

they still come before the commen in the case of Bankrupcty