Preferred Stock Investors: How Afraid Should You Be Of Increasing Interest Rates?

Preferred stock investors are rightly concerned that when interest rates start going up (2015?), the market prices of their preferred stock shares will go down. Interest rates and the market prices of fixed-income securities (bonds, preferred stocks) tend to move in opposite directions.

But on the upside, high quality preferred stocks are currently offering one of the best returns available. Today's fixed-income alternatives look something like this:

• - Bank Certificates of Deposit (national average, 24 month APY): 1.1%
• - Corporate Bonds: 4%
• - High Quality Exchange Traded Debt Securities: 6.5%
• - High Quality Preferred Stocks: 6.8%

Taxes and inflation wipe out the first two.

If you avoid investing in high quality preferred stocks at today's 6.8%, are you making the right call? How much would future prices have to drop anyway, and how likely is that?...

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