Just as I don’t believe in holding the common shares of only one company in my portfolio, I don’t believe in buying the preferred stock of just one or two companies either. The more you rely on an income stream from preferred stock, the more reason you have to be mindful of diversifying to minimize risk. The down side of diversification for most individual investors, however, is the need to do a lot of research. I, for one, am willing to forgo a little (very little) return in order to save some personal time and not have to do so much research. If you are of the same mind, then maybe you should consider investing in preferred stock ETFs.
Unlike bond funds, which I generally don’t care for, the yields for some preferred stock ETFs are currently high enough that you actually do okay even after fund expenses are subtracted. If you can stand the high volatility usually associated with closed-end high-yield funds, you can start exploring these investment options by taking a look at these:
iShares S&P U.S. Preferred Stock Index (PFF), yield 5.89%
PowerShares Preferred ETF (PGX), yield 6.44%
SPDR Wells Fargo Preferred Stock (PSK), yield 6.3%
The holdings of all three of these funds are heavily weighted towards the financial sector, so if that makes your stomach turn, it’s probably a good idea for you to look elsewhere.