High Yield Bonds
As soon as someone mentions junk bonds (high yield bonds)…I have flash backs of Michael Milken. Yes, it’s a risky asset class if you compare it to treasury bonds…but high yield bonds have proven to be less risky than equities.
High yield bond funds average 8.7%, with a 20 year history averaging 6.6%. All bonds are rated based on their credit rating, and junk begins at BB to B. Companies who have a “junk” rating are deemed to be risky…simply because these companies borrow a great deal money. As example, a junk bond company may have assets only 1.5% greater than their outstanding debt.
Interest payments for high yield bonds funds are taxed at regular income tax rates, and there for would be great investments for IRA’s and 401ks.
Current default rates are about 1%. If you’re seeking a higher than normal yield for a portion of your portfolio…the high yield bond fund arena would be a great place to diversify a percentage of your investment portfolio in this bear market.
Please call your broker or financial planner to examine this sector in more details.
Sincerely,
John Bagwell
The Truth About Financial Products.com – Blog
www.thetruthaboutfinancialproducts.com
