No. of Recommendations: 11
Bruce said: I got to wondering if a portfolio of only PREFERRED STOCK could provide long term, reliable dividends that can somehow be used to provide annually inflation adjusted income throughout all retirement years. The answer is, yes it can, with a couple of risks and limitations.


Bruce, I endorse this approach. It is a reasonable portfolio for a retiree or near retiree. In a perfect world, this would be invested inside an IRA or other deferred account. Even if it is in a taxable account, the retiree might be in a low tax bracket, such that taxes would not be a large drag.

Personally I have several accounts with a very heavy weight of preferreds. The main difference is that I am leaving open the possibility of selling all of them off if need be. This works fine if you have one of us managing the account. I would not expect a non-investing senior to make a major investment change like that on their own. This is because I think eventually inflation/interest rates will rise. I just don’t know if any of us will still be around when it occurs.

Aside from the issues of inflation/deflation and rising interest rates, I do have another concern. If the senior buys 20 to 30 preferreds it provides good diversification. If interest rates fall, then most of the portfolio will be called away. The senior would have to become actively involved in picking out new preferreds. Once again, that is not a big deal for active investors like us, but it might be a problem for a non-investing senior.

Related to this, we are working on a similar concept tentatively titled: “NON-traded REIT alternative.” It is not ready to post yet, but it might be a worthwhile alternative to the all preferred portfolio.

On the spectrum of possible portfolio allocations for retirees, the all preferreds approach will be better than most IMO.


Thanks,

Yodaorange
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