High Yield Investment Products 101 - Part H

So far we have introduced several not well known but common high yield investment products:

• Floating rate bank loans
• Preferred stocks
• Junk bonds
• Closed end funds
• Master limited partnerships
• Mortgage REITs
• Business development companies

For ordinary investors who are seeking high yield investment products, the above list includes some good candidates. But there are two things to bear in mind -

1. High return comes with high risks. Although these products come with high returns, but they are sensitive to many factors and you could see either the high yields disappear overnight or significant capital depreciation which wouldn't compensate the high yields.
2. Pay attention to tax efficiency. If you invest in the high yield products in your regular investment accounts, you could face a big tax bill at the tax filing time. It's a good strategy to invest in them in tax-advantaged accounts such as Roth IRA or traditional IRA.