Q. My money in the bank is earning me almost nothing. Should I buy some high yield bonds?
A. The average junk bond recently paid out around 5.8%, well below its historical average of 9.5%, but still a lot higher than the savings rates offered by banks. However, the junk bonds offer higher yields for a reason - they are below investment grade and pose higher risks to investors.
Holding some junk bonds in your portfolio makes sense for their higher yields and lower risks than the lower yield investment-grade bonds when interest rates start moving up. However, don't hold more than 10%, because in any serious economic recession will hit those junk bonds hard.
The Vanguard High-yield Corporate (VWEHX) is a good option to consider - its annual expense ratio is only 0.23%, and so far in 2014 has returned nearly 5%, better than stocks.
A. The average junk bond recently paid out around 5.8%, well below its historical average of 9.5%, but still a lot higher than the savings rates offered by banks. However, the junk bonds offer higher yields for a reason - they are below investment grade and pose higher risks to investors.
Holding some junk bonds in your portfolio makes sense for their higher yields and lower risks than the lower yield investment-grade bonds when interest rates start moving up. However, don't hold more than 10%, because in any serious economic recession will hit those junk bonds hard.
The Vanguard High-yield Corporate (VWEHX) is a good option to consider - its annual expense ratio is only 0.23%, and so far in 2014 has returned nearly 5%, better than stocks.
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