High-yield bonds are popular. What to consider before purchasing "junk".
By The Exchange Team
Investors are buying high-yield bonds, which pay more for risk. Financial experts warn against buying "junk bonds"
Morningstar Direct reports that U.S. high-yield bond funds got $6.8 billion in net money in July.
While yields have lately dropped to 7.29% as of Aug. 10, they are still higher than the 4.42% received in early January.
Junk bonds have a higher default risk than investment-grade bonds since issuers may not pay interest and loans on time.
Charles Sachs, a licenced financial planner, stated, "All bright metals are not gold."
Sach warns that junk bonds may act like stocks on the downside, despite their higher yields.
If an investor wants to acquire high-yield bonds, he may recommend allocating 3% to 5%. "Don't consider it a major food group