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Best and worst investment ideas for 2016

High-yield bonds: The bearish case
High-yield bonds: The bearish case © iStock

High-yield bonds: The bearish case

Not all investment experts are enthusiastic about junk bonds. "If the Fed raises interest rates and Treasuries do badly, high-yield bonds shouldn't do well either," says Mick Heyman, an independent financial adviser in San Diego.

"You might get a positive return if the economy does well," Heyman says. A strong economy can boost the earnings of companies issuing junk bonds, making them less likely to default. "But you're still much better off going into stocks," he says. "There's less risk and more potential for capital gains."

And if the economy does poorly, "these things (junk bonds) could get crushed because investors have to get out of low-quality assets," Heyman says. "So high-yield bonds could underperform, whichever way rates go."

In a balanced portfolio, "growth stocks are the best choice to make money," Heyman says. "You can have risky stocks and safer dividend stocks." And for true safety, you can opt for cash and low-risk bonds, he says. "People want to get that extra yield (from junk bonds,) but they perform more like underperforming stocks."

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