So you want to start investing in preferred shares, huh? I am a massive fan of preferred shares because of the high yields and fixed income.
My journey with preferred shares started with the book “The Billionaires’ Secret” and continues with articles by Rida Morwa on SeekingAlpha.
I am utterly obsessed with preferred shares after three years, and I love to spread the word. But what is the best way to get started with preferred shares?
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Many options to pave your way. There are many ways to get started. First, read the book above and subscribe to Rida Morwa on SeekingAlpha.
You can also start with a few of my articles which I will link below. These will give you the basics of investing in preferred shares.
- Preferred Shares 101: Getting Started with Preferred Shares
- Preferred Shares 102: Terminology is Important
- Preferred Shares 103: The Rule of 72
- Preferred Shares 104: The Search for Shares
- Preferred Shares 105: Long-Term Preferred Strategy
- Preferred Shares vs. Closed-End Funds
- From Dirt to Dividends 1: Preferred Shares
- Preferred Shares vs. Treasury Bonds
I highly recommend you read these articles before continuing—I will assume you have basic knowledge moving forward.
Three ways to invest. Over the last three years, I have established three preferred positions: individual shares, ETFs, and Closed-End Funds.
Each has advantages and disadvantages, but you combine all three for solid results. Now, I want to dive deeper into each category and give my experiences at the end.
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Investing in individual preferred shares. My favorite way to invest in preferred is by buying individual shares directly from the stock market. There are distinct advantages to investing this way:
- You can choose what companies and preferred shares you want.
- You can buy at attractive yields.
- You can easily track your preferred shares to continue to find discounts.
- You don’t pay an expense fee.
However, the main disadvantage is the time it takes to assemble a solid-performing portfolio. Not only do you need to find the preferred shares, but you also need to find them at great prices.
“The Preferred Stock Channel” website is an excellent place to start. However, you can spend many days looking for the right preferred shares.
You’ll wait even longer if you want to invest in notable companies that offer preferred shares. As I wrote in “Preferred Shares vs. Treasury Bonds,” preferred shares from great companies have an inverse relationship with treasury bonds.
Only recently, with the increase in bond yields, have we seen fabulous sales on preferred. I just bought preferreds from Public Storage (PSA.P), Bank of America (BAC.O), JP Morgan (JPM.K), and Wells Fargo (WFC.Z)—all offering yields over 6%.
But it took me three years to get into positions, and the 10-year treasury had to increase to 4.5% before these preferred shares offered better yields.
Investing in Preferred ETFs. If you lack the time, you can put your money into a preferred ETF. This will give you exposure to preferred shares without taking up any time.
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The ETF will move inversely to bonds, similar to individual stocks. However, ETFs have a few downsides.
The only Preferred ETF that I use is iShares Preferred and Income ETF (PFF). I own roughly 56 shares and invested over $2,100 in PFF on my Dividend Debit Card.
The main problem with an ETF is that it is passively managed; therefore, if too many people withdraw, the fund sells shares.
As we learned before, the best time to buy preferred shares is when the market tanks. So PFF will suffer during broad market sell-offs. However, it is a mainstream ETF; you can get it on Cash App and Stash.
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PFF is a good ETF to dollar-cost average into your position. It offers yields of 3-5% depending on when you purchase. You’ll do much better if you only buy when preferred shares are suffering.
Investing in Preferred Closed-End Funds. There are tons of preferred CEFs; however, my favorite leveraged fund is actually an ETF.
Virtus InfraCap US Preferred Stock ETF (PFFA) is an actively-managed ETF and uses leverage to juice returns. This means that a fund manager is calling the shots.
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Yes, you will have to pay a more significant expense fee; however, you will have someone buying preferred at a great value. You can get 10% yields from PFFA on average.
Preferred shares have good and bad times to purchase, and I want someone to do the legwork for me. PFFA is my top choice for new investors; however, it is a niche ETF. You will only find it on significant brokerages like Wells Fargo and Charles Schwab.
Luckily, M1 Finance offers PFFA, so I have an excellent position there. I also purchased $2,000 in PFFA on Charles Schwab today, but it is Saturday, so I have to wait until Monday to execute the purchase.
If preferred shares are getting beat up in the market, I will load up on PFFA. I am sure the fund manager is taking advantage of excellent price action in the sector.
Which is right for you? It all comes down to time and platform. If you just want exposure to preferred shares, PFFA is my top choice.
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I love knowing that it is actively managed and someone is taking advantage of miss priced offerings. However, most beginner platforms don’t offer PFFA.
Therefore, I would refer you to PFF. You’ll get lower yields, but it is great to have exposure to preferred shares ETFs, treasury bond ETFs, mortgage REITs, municipal bond CEFs, and junk bond ETFs.
All of these securities move together and inversely at different times. That’s why it is more accessible to dollar-cost average until you can follow the market more intentionally.
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The holy grail of preferred share investing is buying individual shares. Once you get the hang of purchasing and tracking them, you’ll fall in love.
Conclusion. I use all three methods in my overall income portfolio. Investing for income is my favorite part of the day!
An important side note; most times, you cannot reinvest dividends into individual preferred shares. That’s why PFF and PFFA can provide you with a more straightforward long-term strategy.
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If you have the time and disposition, start looking for individual preferred shares today. You will enjoy finding discounts, tracking prices, and receiving dividends.
However, PFF and PFFA are great places to start. You can also view their top holdings to get ideas for individual purchases.
Welcome to the world of income investing via preferred shares. It is a great strategy, and one most people will never experience. You’re becoming an elite investor. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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