December 9, 2013

What type of investments are owned in a high yield bond fund? Why should you avoid this type of fund?

2 thoughts on “December 9, 2013”

  1. Katherine Graham says:

    Bonds that belong to companies that are, “sick and might fold”. Because of this, high yield bond funds are required to provide a higher return, otherwise nobody would buy them. You should avoid this type of fund, because there is too much risk for too little reward.

  2. Mike Finley says:

    Well stated, Katherine. I will add a bit more.

    High yield bond fund = junk bond fund. It just sounds nicer. These bonds provide a higher yield otherwise no one would invest in the sickly companies that issue them.

    Avoid these types of funds because they tend to run parallel to stock funds except they don’t provide the big upside that a diversified stock fund could. They do provide the downside as Katherine stated. When investing in bonds, stick to short to intermediate term bond index funds that own only quality bonds, not junk. Junk is not your friend!

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