For nearly a year preferred stocks have been in what could be labeled as the perfect storm of stable to falling interest rates and solid stock market performance.

So far year to date many individual preferred stocks and preferred stock ETFs have outperformed the Standard & Poor’s 500 Index  and done so with much less overall volatility. Which raises the question: Do you need preferred stocks in your retirement income portfolio, and what category should they fall into as part of your diversified approach to investing?

When evaluating an investment in preferred stocks it’s clear the value proposition is in the high distribution yields and relatively low volatility. For these very reasons, I believe preferred stocks can be an excellent option for investors seeking to supplement an income gap with a portion of their portfolio, or searching for a noncorrelated asset class that will react differently to changing market dynamics. Managing an income gap in retirement is never easy, and with yields falling on many high dividend stocks due to recent outperformance, the number of options for high income streams are deteriorating.

Deciding how much exposure you should ultimately add to your portfolio is an important consideration. For clients in our Strategic Income Portfolio, we categorize our preferred stock exposure as part of the alternative or hybrid income sleeve.While that alternative sleeve can expand to as large as 20% of our total investible assets, our target figure for preferred stock exposure is currently in the neighborhood of 5% of our total portfolio. Yet I wouldn’t hesitate to increase that to 8%-10% if prices were to become extremely attractive.

Read the entire article on MarketWatch.com