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Strategies & Market Trends : Young and Older Folk Portfolio

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chowder

To: DoctorRicky who wrote (7830)	8/10/2024 10:07:22 AM
From: SeeksQuality	1 Recommendation of 22175

Junk (high yield) bonds can be profitable, for sure... They face two principal risks. In a "credit tightening" environment, weaker companies can be pushed into default if they are unable to roll debt over. In a "recessionary environment" companies can slide into bankruptcy. Note that these risks occur in different segments of the economic cycle, though they can hit back to back at times. The Sharpe ratio on junk bonds is comparable to equities, making them an "efficient" investment on a risk/return basis. In my opinion, junk bonds are best handled through funds. The fund managers have expertise both in identifying specific risks and in managing those risks. I have never personally invested in junk bonds, but can see the logic of putting up to 5% of assets in that category. Just recognize that they are a lot riskier than investment grade bonds, thus a portfolio replacement for equities more than a replacement for fixed income. Solid article here: troweprice.com

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