When you hear the words “junk bonds,” you probably get the mental picture of a junkyard full of bonds that are pretty much worthless. This, however, could not be further from the truth. Junk bonds are essentially bonds that are financed to companies that pay out high interest to the issuer. The reason these pay out high interest is because the companies have no other choice but to get these high-interest bonds because of their less than stellar credit rating. Who knew that credit ratings also affected companies and not just people? It is definitely food for thought.

Of course, with poor credit ratings comes a lot of risk in loaning the companies any amount of money. People who deal in junk bonds are, in a way, playing Russian roulette with their money. There is a chance that they will see a return on their investment, but there is also a good chance that they will never see all of their initial investment again. Even if the company has to file bankruptcy and liquid all of its assets, the person holding the junk bond could still not get back everything that is owed to them. For that very reason, it is important to know exactly what you are getting into before getting involved in this type of investment trade.

The main benefit to dealing with junk bonds is that it allows you to have a diversified investment portfolio. It is important to have a diversified investment portfolio because you do not want all of your eggs, or money, in one basket so to speak. However, you need to keep the risks of these junk bonds in the forefront of your mind. Do not just buy every single one that you can get your hands on. This type of investment requires more research and analysis than other types of investment – even more than simply buying stocks on the stock exchange.

As long as you keep in mind all of the risks involved with junk bonds and you do all of your research, you should be fine when it comes to getting these types of investments. Never go into any investment with your eyes closed, but this is especially true for junk bonds. The more you know about a company you thinking about investing in – no matter how you plan to make that investment – the better off you will be in the long run.

On March 13, 2012 By Richard Wilson

Practice Test

Junk Bonds – Risking Your Money with Junk Bonds

Junk bonds get a bad rap because of their name and the reputation they developed thanks to unscrupulous investors like Ivan Boesky in the 1980’s. While junk bonds are not exactly the safest investments you will ever make, they are still a legal and legitimate way for a company to raise money. Before you jump into the world of buying junk, you need to take some time to understand the meaning of the phrase and why it has developed such a bad rap over the years. In some cases, these kinds of bonds make for some of the best investments available. In other cases, the risk is so high that the promise of a great return may not even be worth the potential loss.

Junk bonds are bonds issued by companies with a B credit rating or lower. Companies that have never issued a bond before and have bad credit are forced to issue junk bonds. The benefit to the investor is that these kinds of bonds usually carry a return rate that can exceed standard government bond returns by as much as six to eight percent. But if the company issuing the bond has a credit rating of C or D, then the risk for investing in a company like this is incredibly high. Then there are companies which are referred to as fallen angels. These are companies that had high credit ratings but then go knocked down to junk status. In many ways, the fallen angels present some of the most tempting bond offers available.

A fallen angel is tempting because there is that feeling that the company was just having a bad stretch and that better times are ahead. But when a company that used to offer solid securities is forced to offer junk bonds, it says something about the company that you do not want to ignore. You will want to do some serious research on fallen angels offering junk bonds before you make your investment. Find out what management changes have been made since the company’s collapse and become very familiar with the methods that the company intends to use to bring value back to its credit rating. If you assume the risk without doing the research then you could be out all of your initial investment.

Because junk bonds are so risky, they are usually left to wealthier investors and organizations that can afford to speculate. Junk bonds can sometimes yield double-digit returns that would make an investor a considerable profit. But they can also cost you everything if you don’t do your research first.

On March 12, 2012 By Richard Wilson

Practice Test

Junk Bonds- What You Need to Know

There are a lot of different investments out there to choose from, and while junk bonds might not seem like the most appealing option, they actually can have some merit for people who use them carefully. Although they sound worthless, these bonds are technically the same as a regular bond, giving you an IOU from a company that says they will pay you a certain amount, plus interest, on a specified maturity date. However, these bonds are different because of the quality of credit that they hold. Companies that have less than substantial credit will fall into this category.

Junk bonds are basically used by companies that don’t have a lot of means to get the capital that they need. That makes it hard for them to do anything with their business. This is basically going to affect everything that they do, which is why they offer bonds with high yields. For many companies, this is the only way that they can get the funding that they need and they will often pay a lot more than people realize for the bonds that are purchased at the time of maturity.

These also carry higher risks, of course, because junk bonds are from companies that are more likely to have financial issues. Therefore, they are more likely to default on the bond. This is basically a situation where you have to weigh the pros and cons and make sure that you look at everything that you have to choose from before you make an investment. These bonds do have a good return when they come through, but the risks sometimes create a situation where people don’t feel safe investing. It’s all about figuring out whether or not this type of investment is going to meet your needs.

Before you start buying junk bonds, you need to make sure that you know about the risks and are able to analyze the best bonds to buy. If you are very rich, or very motivated, you will find this market to be appealing. Otherwise, it might not exactly suit your investment needs. It will be up to you to take advantage of everything that you have to choose from and make sure that you get the right investments for your needs, whether those end up being junk bonds or anything else that you decide to invest in. As long as you know what you are dealing with, making the right decisions should be much easier.

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Junk Bonds – Not Exactly Bonds That Are Meant for the Junkyard

Junk Bonds – Risking Your Money with Junk Bonds

Junk Bonds- What You Need to Know

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