Sunday, July 25, 2010

Invest in Preference Shares

A consumer asked for my views about a 5 year single premium product that pays a guaranteed yield of 2% p.a. or 10% for 5 years. The investment showed an immediate 10% loss during the first year, a smaller loss during the next two years and will only produce the gain of 10% on maturity at the end of 5 years. I advised the consumer against this type of investment, as it locks up the money for 5 years and only gives a modest return.

I did some research on preference shares and REITS and have posted several articles in this blog. I have also written a FAQ on "investing in preference shares", which is posted in my website, (click on Ask Mr. Tan). The preference shares issued by the local banks give a yield of 4.2% to 5.9% and should be relative safe.

Tan Kin Lian

1 comment:

hyom said...

Preference stocks are at any time preferable to the structured products sold by financial advisers who are paid on commission.

However, if one is already experienced investing in common shares, one might consider to invest in high dividend-yield stocks since preference shares are trading above par now.

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