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Preferred stock or bonds?

Discussion in 'Ask any question!' started by macnerd, Apr 20, 2018.

  1. macnerd

    macnerd New Member

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    I'm researching opening a brokerage account. I've spent hours on Google & YouTube learning about the market.

    I know I'm supposed to diversify.

    I read about ETFs versus mutual funds & I prefer ETFs for their tax friendliness.

    I read that when stocks go down, bonds usually go up.

    I read that bondholders get their money every month even if the company has financial difficulties, but the company may choose to postpone paying the preferred stockholders.

    I read about preferred stock versus bonds. Both pay a fixed amount. The IRS taxes dividends differently from interest. It seems to me that preferred stocks would be better than bonds in a portfolio because one pays less to the IRS with preferred stocks.

    But don't bondholders get their money ahead of preferred stockholders if the company goes bankrupt?

    This is a loaded question! Preferred stocks instead of bonds in a portfolio?
     
  2. macnerd

    macnerd New Member

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    Is someone going to answer my question? It's been a week since I posted it.
     
  3. macnerd

    macnerd New Member

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    Well, I posted a question over 2 weeks ago & still haven't received a response. So, I'll just ask the same question elsewhere on the forum. Maybe I'll get a response from another sub-forum.
     
  4. macnerd

    macnerd New Member

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    I don't understand this at all. Three weeks ago I asked a question & have yet to receive a reply. WHY???

    You've given me no choice but to ask these questions elsewhere. Obviously, I'm not going to get a response from this forum.
     
  5. macnerd

    macnerd New Member

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    Apparently, I'm not alone in being ignored! I noticed a post made back in January with no replies!
     
  6. stock1234

    stock1234 2017 Stock Picking Contest Winner

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    [​IMG]

    [​IMG]

    @macnerd First of all, I am sorry that you feel like you are being ignored here. I felt like I am no expert in the questions that you asked and that was why I didn't respond. I was hoping another member who knows more than me was going to respond. Anyway, since I don't want you to feel like you are being ignored here, I will just state my opinions here although it might not help you much at all :p

    The FED is rising rates now, so both PFF (Preferred Stocks ETF) and TLT (Bonds ETF) are struggling lately. I personally would choose bonds over preferred stocks right now though. I just don't think preferred stocks are that attractive in a rising rates environment, and bonds are better hedges just in case that we have some kind of a crash in the stock market. For me personally, I have TLT (bonds), GLD (Gold), and FXY (Japanese Yen) in my long term portfolio as my hedges against the potential crash in the stock market.

    [​IMG]

    At some point I might be interested to add BSV (Short term bond ETF) when I feel like the FED is almost done with raising rates, probably not anytime soon though ;)
     
    bigbear0083 and Onepoint272 like this.
  7. macnerd

    macnerd New Member

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    Unfortunately, patience isn't one of my virtues. I frequently put my foot in my mouth. I know that I'm not the only poster but when I don't receive a reply for more than 3 weeks & I notice that posts of other members haven't been responded to, then I feel like I'm being ignored. I'm not really. As you stated, you felt like you weren't an expert & you hoped that another member would respond.

    I've retired & I'm interested in creating a portfolio. I've spent hours on Google & YouTube researching investments. I haven't done anything yet. I keep getting e-mails telling me that the stock market will crash & that I should buy gold. I've researched that as well. From what I've read, precious metals should only be a small percentage of one's portfolio. That's confusing, too. Gold/silver bars or coins or rounds. Some dealers offer platinum & palladium.

    The reason that I asked the question is that preferred stocks & bonds are similar. Both pay a fixed amount, both can be recalled. In fact, preferred stocks are a hybrid investment. They have features of both stocks & bonds. But the IRS taxes bond interest at the individual's personal tax rate but taxes preferred stock dividends at less than one's individual tax rate. I also read that preferred stocks can qualify as qualified dividends. That's why I'm leaning towards preferred stocks over bonds - they're more tax-friendly. I know that bondholders get their money before preferred stockholders & common stockholders.

    HMMM. When stocks go down, bonds usually go up. So I should have some bonds in my portfolio. But there are many different kinds of bonds - US treasury, corporate, municipal. It's a bit confusing! Nowadays there's an ETF for everything. I suppose that's there's at least one ETF that invests in all kinds of bonds.
     
  8. stock1234

    stock1234 2017 Stock Picking Contest Winner

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    No problem. My thinking is that most people on this forum just trade common stocks, so we aren't getting that much response on something regarding to preferred stocks and bonds.

    Who are sending those emails to you saying that the stock market will crash and gold will surge? I wouldn't pay too much attention to those emails, a lot of them could be just spams. I do have some shares of GLD (Gold ETF) in my long term portfolio, but it is more like a hedge for me just in case that we have some kind of a crash in the stock market rather than I think gold prices are going to surge :p

    I think the biggest difference between preferred stock and bond is that preferred stock isn't exactly considered as "safe haven", they tend to go down along with the common stocks when we have downtrend in the stock market. On the other hand bond is considered as "safe haven", they tend to go up although not 100% of the time when we have weak economy or bear market for stocks.

    Yes you are correct, there are a lot of ETFs for Treasury, corporate bonds, or the muni bonds nowadays. I don't really know an ETF that includes the combination of all of them though. I only know some popular ones like TLT (Treasury), LQD (Corporate bonds), and MUB (Muni bonds). If you want to be diversified in bonds, maybe you can buy a little bit of short term bonds, intermediate term bonds, and long term bonds rather than buying all long term bonds or all short term bonds, etc.
     
    bigbear0083 likes this.
  9. macnerd

    macnerd New Member

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    I think that I've answered my own question! Usually, when stocks go down, bonds go up & vice versa. So preferred stocks would do the same. Preferred stocks can be recalled & so can bonds. Preferred stock can be converted to common stock. So I can see maybe having a small percentage of preferred stocks in a portfolio.

    I get a lot of e-mails from companies who sell gold & silver bullion. So naturally they will push gold & silver. Gold & silver don't pay dividends. They go up & down in value just like stock. Their value can never be zero like stocks & bonds. The IRS treats gold & silver as collectibles & taxes them at 28%! Plus one has to pay a monthly storage & insurance fee. There are ETFs that say that they have physical gold & silver (like GLD) but they don't actually store the gold & silver. The gold & silver is held by a custodian bank & you know what can happen to banks! Besides, I have 3 choices - bars, coins or rounds. I don't like the idea of paying $1,300 or whatever the current price for gold & getting an American Eagle gold coin with a legal tender value of $50! Hypothetically, I walk into my local Kroger & buy groceries & give the cashier a $50 gold coin. She'll look at me & wonder what to do with it. I tell her that it is legal tender & has a value of $50. She'll probably call in the manager & ask what to do with it. The manager may have the same reaction.

    So, I'll have to do research on the different kinds of bonds & invest in US Treasury & municipals & corporate bonds.
     

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