In today’s investment market, there’s no real reason to keep junk bonds in your portfolio.
Or so says one June 26 USA Today article.
“There really are very few happy outcomes from junk bond funds right now,” the article advises.
Currently, investors across America have a collective $326 billion in junk bonds, otherwise known as high-yield bonds.
But why are junk bonds so dangerous right now?
A junk bond is essentially a long-term loan that an investor gives to a company with a bad credit rating. And because companies with bad credit have to pay higher interest rates for loans, a junk bond can, in many cases, be a financially sound investment to add to one’s portfolio.
However, USA Today reports, prices for high-yield bonds are at an all-time high right now, which means yields for these bonds are at all-time lows. In late June, the Barclays Capital High-Yield Index yielded a mere 4.83% — the lowest yield recorded for junk bonds in history.
Yields could technically rise again — but it’s not worth the risk to keep junk bonds in one’s portfolio. USA Today reports that yields this low, in a worst-case scenario, could cause another financial meltdown like the one of 2007-2008.
So, to protect your finances from going under if junk bonds continue to produce record-low yields, it’s best to sell them while you can. This is especially true for male investors, as studies have shown that 61% of men who wait too long to sell off a bad investment will repeat their mistake, compared to 48% of women.
And if you had been thinking of investing in a junk bond for the first time, it may be a good idea to wait a while.