I Asked A Chatbot About My Worst Investment

Currently, my worst investment across my portfolio is the ZPR “BMO Laddered Preferred Share Index ETF.” It is currently down 8% from where I bought it.

I might have bought it too early. Investments such as these (and bonds) perform better in falling interest rate environments, not rising ones. But I feel that interest rates are near a peak, and I want to get into these investments now and not wait until everyone wants to get into them.

I asked ChatGPT what it means when an investment is laddered:

A laddered investment strategy refers to a way of building a portfolio of securities, such as bonds or preferred shares, with maturities or redemption dates that are spaced out at regular intervals. For example, a ladder of preferred shares might include a mix of shares with maturities ranging from one year to ten years.

The goal of a laddered investment strategy is to provide a balance between stability and flexibility. The investments with shorter maturities or redemption dates provide a certain level of stability, as they will mature or be redeemable in the near future, while the investments with longer maturities or redemption dates offer the potential for higher returns over the long term. By regularly adding new investments to the ladder, an investor can gradually “roll over” their portfolio and take advantage of changing interest rates or market conditions.

Laddered investment strategies are often used to manage risk, as they allow an investor to diversify their portfolio across a range of maturities or redemption dates. This can help to reduce the impact of fluctuations in interest rates or market conditions on the overall value of the portfolio.

— ChatGPT

So it’s a mix of maturities, which is a method to reduce time-based risk.

Then I asked ChatGPT what the advantages of a laddered preferred share ETF are, and here is what it wrote.

Laddered preferred share ETFs are a type of investment that provides exposure to a diversified portfolio of preferred shares, which are a type of debt security that typically pay a fixed dividend. There are several potential advantages to investing in a laddered preferred share ETF:

1. Diversification: A laddered preferred share ETF provides diversification across a variety of preferred shares, which can help to reduce risk and volatility compared to investing in a single preferred share.
2. Potential for steady income: Preferred shares typically pay a fixed dividend, which can provide a steady stream of income for investors.
3. Potential for capital appreciation: Preferred shares may also appreciate in value over time, providing the potential for capital gains in addition to the dividends received.
4. Professional management: A laddered preferred share ETF is managed by professionals who are responsible for selecting and monitoring the preferred shares in the portfolio. This can be a convenient option for investors who do not have the time or expertise to manage their own preferred share portfolio.
5. Liquidity: Preferred share ETFs are highly liquid, making it easy for investors to buy or sell shares as needed.

It’s important to keep in mind that investing in a laddered preferred share ETF carries risks, including the risk of default by the issuer of the preferred shares and the risk of fluctuating market conditions. As with any investment, it’s important to carefully consider your investment objectives, risk tolerance, and financial situation before making a decision.

— ChatGPT

That’s a pretty good answer.

I purchased this preferred share ETF because I do view these issues as returning an OK return on investment with less fluctuation than the underlying stock.

5% is an OK rate of return. Not spectacular. Barely above what a GIC currently pays. I should have thought about that more before investing. But I was expecting more stability.

Instead, it’s down 8%.

I am not sure if I should try to lower my cost basis (invest more capital in it). 5% is not great. Lowering my cost basis to pursue 5% is probably not the best use of funds right now.

Powell suggests they will not be lowering interest rates at all in 2023. That might be true. They’ll stop raising them, and just leave them there for a while.

I think I will not invest more in this. And just wait a bit more for it to play out.