I have been a lover of preferred stock for about seven years now. I discovered them while looking over a hotel REIT I liked. At first, I was skeptical. Preferred stock is this funky security that’s kind of like a bond but kind of like a stock. It trades like a stock, but preferred stock stays in a trading range like a bond.

Preferred stock pays dividends like a bond does, and is second in line behind bonds for repayment in a liquidation.

Now, you could troll the internet and find individual preferred stock issuances that work for your portfolio. I happen to hold Ashford Hospitality Trust (AHT) Preferred D Series, which pays 8.45%. However, I also hold the iShares US Preferred Stock (PFF), which pays 6.04% and holds a portfolio of preferred stock.

Which leads to the inevitable question: Should be scared of the Fed raising interest rates or not?

It matters because preferred stock is so much like bonds that if the Fed raises interest rates, the interest one can earn on bonds may challenge that earned by preferred stock like PFF, causing investors to exit PFF in favor of traditional fixed income investments.

Here’s the thing: I’ve been hearing about rate hikes for years. Every now and then some big scare comes along and there’s a selloff in PFF. However, PFF has been as stable as you would expect from an ETF invested in preferred stock that doesn’t trade in a big range.

PFF has a 5-year return of 6%, but that doesn’t include the 6% to 7% yield it’s thrown off every year. You can see from the chart the occasional dips and buying opportunities you get.

So when the Fed raises rates, and it will one day, you can expect everyone to freak out and sell PFF. In my opinion, that’s a buying opportunity. That’s because PFF has about the same risk as any long term bond, which is effectively zero, from a fundamental standpoint.

I say “fundamental standpoint” because market psychology and a lack of understanding of preferred stock risk is what may push PFF lower in a higher-rate environment. From a practical standpoint, PFF has 302 holdings. So many of these companies — many of which are pillars of the U.S. economy — would have to literally implode for PFF to be negatively impacted in any material way.

Even in the financial crisis, when all the finance and bank companies seemed on the edge of solvency, the PFF fell 65% from its peak, and then came roaring back when everyone realized they had panicked.

That is exactly the virtue of diversification. PFF has 302 different positions. They are simply not all going to implode at once, or even a handful of them. That’s why you get such great security that I believe is better than the long bond.

Meanwhile, there’s risk in buying long-term bonds of 10 years or more. That’s why rates are higher for those bonds – anything could happen in 10 years or more that drives their value lower. As it is, the 10-year only yields 2.39%, and the 30-year yields 3.11%. These yields would have to climb significantly to be a true risk-comparable threat to preferred stock.

So unless the long bond is paying 7% or more, I’ll stick with preferred stock and the PFF.

Lawrence Meyers owns shares of AHT, AHT Pref. D, and PFF.