Worst of both worlds in exchange for yield:
junk bond yields if things are good, stock market losses if things are bad.
Not exact matches
If the stock market gets wild again, junk bonds will also get hit, but if you can wait out turmoil, the higher yield will pay you more incom
If the stock market gets wild again,
junk bonds will also get hit, but
if you can wait out turmoil, the higher yield will pay you more incom
if you can wait out turmoil, the higher
yield will pay you more income.
Also remember that
if a
bond fund
yields 6 % currently, it is stuffed with
junk bonds.
If we extend this thought to the
bond market, we find an underlying truth when it comes to
junk and
yields.
For example, in a world where short - term interest rates are zero, Wall Street acts as
if a 2 % dividend
yield on equities, or a 5 %
junk bond yield is enough to make these securities appropriate even for investors with short horizons, not factoring in any compensation for risk or likely capital losses.
For that matter, your
bond holdings could also have been more risky than the broad
bond market, which could be the case
if you invested heavily in high -
yield, or
junk,
bonds, which lost more than 25 %.
Similarly, some high -
yield bond funds may also be too risky
if they invest in low - rated or
junk bonds to generate higher returns.
Stocks are harder to measure, so
if you need better guidance, look at the
yields on
junk bonds.
If you decide to pour your entire life savings into a high
yield junk bond fund or stock that I mention and it tanks, don't come crying to me.
However, a
junk bond can be a useful diversification tool
if you are intimately familiar with the company and its operations, and investing a small part of your portfolio in a high -
yield bond fund might be a good strategy.
When you have many different parties going into the markets seeking income, not caring where they get it from, and a shock hits one part of the market, the effect flows to other areas
If all of a sudden
yields on
junk bonds look cheaper, the
yield trade - offs of buying
junk and selling dividend paying common stocks looks attractive.