A financial professional with more than a decade of experience, Jeffrey Bracchitta possesses expertise in mergers and acquisitions. Jeffrey Bracchitta also honed his skills in high-yield bonds as a banker.
Unlike investment bonds (also known as municipal or corporate bonds), which have a low risk of default, high-yield bonds pay a higher yield due to increased risk. A majority of investors use mutual funds or exchange-traded funds to diversify their investment in high-yield bonds, thus reducing risk.
Individuals interested in placing funds into high-risk bonds must consider the amount of return he or she expects to earn as well as liquidity. In addition, he or she should evaluate personal risk tolerance and the ability to accept changes in interest rates due to a volatile market. For example, a recession can increase the potential for default, which may leave an investor with little or no yield. However, if an investor correctly predicts a slow and steady increase in rates for a particular high-yield bond, the investment can be a rewarding.
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