Junk Bond Funds Can Have Different Levels of Risk

However, according to opinions in the financial press, both junk bonds and investment grade corporate bonds are overbought and positioned for a correction.

Junk bonds are at the end of their rally and look like a bubble ready to burst according to many analysts.  Junk bonds have been driven to record levels by yield-seeking behavior. Now that a correction may be near, fund managers are reacting in two ways: some are sacrificing some yield by upgrading the credit quality of their portfolios, and others continue to seek higher yield by buying smaller, riskier deals.  For high-yield bond fund investors and their advisers seeking to manage risk, it is important to know the difference and to know what is producing the yield they seek. (more…)

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Alternative Investments Can Be Traps for the Unwary

Some of the typical risks and problems associated with alternative investments are risk of loss of principal, excessive fees, lack of transparency, illiquidity, and high correlation with asset classes (like stocks) that they purportedly hedge.

The panic of 2008, continued stock market volatility and the problem of how to reduce debt and close deficits have flattened investor confidence in the stock market, and, consequently, traditional asset allocation models.  What was traditionally viewed as a balanced portfolio – 60% stocks and 40% bonds – is now viewed by some as high risk. (more…)

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