## Investing in Preferred Stock with Fidelity
### Understanding Preferred Stock
Preferred stock is a type of hybrid security that combines characteristics of both common stock and bonds. It offers fixed dividend payments, similar to bonds, while also providing some of the potential upside of common stock. Key features of preferred stock include:
* **Fixed Dividends:** Preferred stockholders receive regular, fixed dividend payments, which are typically higher than bond yields.
* **Priority Status:** Preferred stockholders have a higher claim to dividends and assets than common stockholders in the event of a company’s liquidation.
* **Limited Appreciation:** While preferred stocks can appreciate in value, their growth potential is generally lower than that of common stocks.
* **Callable and Convertible Features:** Some preferred stocks may have call features, allowing the issuer to redeem them at a specified price, or conversion features, permitting them to be exchanged for common stock.
### Investing in Preferred Stock with Fidelity
Fidelity offers a wide range of preferred stock investments, giving you access to a diverse selection of issuers and industries. Here are the steps involved in investing in preferred stock with Fidelity:
1. **Open an Account:** If you don’t already have a Fidelity brokerage account, you can open one online or by calling their customer service.
2. **Research Preferred Stocks:** Fidelity provides a comprehensive library of research and screening tools to help you find potential preferred stock investments. You can filter stocks based on factors such as industry, credit rating, dividend yield, and call features.
3. **Place Your Order:** Once you’ve identified preferred stocks you’re interested in, you can place your order online, by phone, or through a Fidelity representative. Fidelity offers various order types, including market orders, limit orders, and stop orders.
4. **Monitor Your Investments:** Track your preferred stock investments’ performance regularly. Fidelity provides real-time quotes, charts, and market updates to help you stay informed about your portfolio.
### Benefits of Investing in Preferred Stock with Fidelity
Investing in preferred stock with Fidelity offers several advantages:
* **Low Trading Fees:** Fidelity charges competitive trading fees for preferred stock transactions, which can save you on brokerage costs.
* **Extensive Research Resources:** Fidelity provides in-depth research, analysis, and screening tools to help you make informed investment decisions.
* **Diversification Options:** Fidelity offers a wide range of preferred stocks, allowing you to diversify your portfolio across different issuers, industries, and maturities.
* **Professional Support:** Fidelity’s team of experienced investment professionals can guide you through the investment process and provide personalized advice.
### Considerations Before Investing in Preferred Stock
Before investing in preferred stock, it’s important to understand the potential risks and considerations:
* **Interest Rate Risk:** Preferred stock prices can be affected by changes in interest rates. Rising interest rates can lead to lower preferred stock prices, as investors seek higher yields from other fixed-income investments.
* **Call Risk:** If a preferred stock has a call feature, the issuer can redeem it at a specified price, which could limit your investment return.
* **Credit Risk:** The creditworthiness of the issuer impacts the value of preferred stock. If the issuer’s credit rating deteriorates, the value of the preferred stock may decline.
* **Liquidity Risk:** Preferred stocks generally have lower trading volumes than common stocks, which can make it more difficult to buy or sell them at a desired price.
### Conclusion
Investing in preferred stock with Fidelity can be a valuable strategy for diversifying your portfolio and potentially generating income. By understanding the unique characteristics of preferred stock and leveraging Fidelity’s platform and resources, you can make sound investment decisions and navigate the market with confidence. However, it’s crucial to carefully consider the potential risks and consult with a financial professional before making any investment decisions.