Preferred stocks do make an attactive fixed income component of a portfolio. Yes, diversification is the key. And you will want to watch the bond rating.Starting investors with under about $10K to invest might do very well in a preferred stock fund. A bond fund may also work just as well. But each of these has an expense ratio, which you will want to keep an eye on.As your account balance grows, buying individual preferred issues through a discount broker makes a lot of sense. These days there are many to choose from with a wide array of yields and bond ratings. My most recent list of them is here--http://boards.fool.com/Message.asp?mid=26299902But there is a bit of a paradox here. Young investors don't need much of a bond position until they get close to retirement. More senior investors should buy the preferred issues themselves. So I don't see much need for preferred ETFs.
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