High Yield Investment Plan: The Best Online High Yield Investors Are Doing This Programs Now

Thu, Feb 20, 2014

If you’re putting together a high-yield investment plan, all I can say is WAIT!

Yes, we all want a lot of income from our investments and the highest yield possible.

And we want them now.

Ufa High Yield Member Investmentlow risk high yield investments

However, you have to ask answer this question.

If I told you I can guarantee you a yield of 5% for the next three years and all you have to pay me is 50% of your capital, would you take it?

Of course not. It’s ridiculous. Risking so much capital to make a bit of extra yield is not worth it. It’s going to cost so much more money in the end.

But the thing is that’s exactly what most high yield investors are doing right now.

Let me explain.

Safe High Yield Investments

One of the most popular high-yield investment vehicles is high-yield debt (a.k.a “junk bonds”).

They have been in demand as yield-starved investors chase the enticingly high yields of junk bonds.

 

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The chart below form the Wall Street Journal shows the yield on junk bonds has plummeted:

 

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As the yield has gone down, the price has gone up.

So with yields at record lows, it’s a sign prices are at record highs.

 

Right now high-yield bonds are priced for absolute perfection.

When it comes to any investment, especially junk bonds, the results are rarely perfection.

Still though, investors have bid junk bonds up to the point they now yield 4.966% – an all-time low yield.

The risks these bonds carry, meanwhile, are enormous. And the risks are only going up as the price of high-yield investments like these goes up.

Aside from rising interest rates, liquidity (when it’s tough to find a buyer at a good price), and other common factors, there’s default risk.

That’s the biggest risk to junk bond holders. It’s also why these bonds pay a much higher yield than corporate debt issued by Wal-Mart, Apple, McDonald’s and other high cash flow companies with spotless credit ratings.

Since 1981 the average default rate on high-yield bonds was 4.6%.

The default rate has been as high as 11% (both 1990 and 2008 levels) and as 2.5%. Neither of them has lasted.

At the average rate, junk bonds are at best a breakeven proposition (a 5% yield minus a 4.6% default rate equals a net yield of 0.4%).

At the best default rate, junk bonds will likely net a 2.5% yield.

The price risks, meanwhile, are much greater than the measly yield of between 0.4% and 2.5%.

This note from Barron’s on junk bonds sums up the situation best:

In short, while junk bonds don’t appear in any imminent danger of disappointing—most strategists expect another year of unspectacular mid-single-digit returns—the bonds are hardly a bargain at today’s price.

That’s exactly the problem.

No one sees problems for awhile. But once they start to decline, the value of high-yield bonds will drop fast.

Until that time comes, high-yield investors are taking an enormous rest betting on highly speculative junk bonds for a very small return.

Successful investors don’t risk dollars to make nickels. They risk nickels to make dollars.

They say it’s always darkest before dawn. Well, it’s probably always lightest before nightfall begins as well.

Right now the sun is shining brightly on junk bonds. It won’t forever.

The best high-yield investment plan to make right now is wait.

You may have to suffer a couple more years of low income, but you’ll have much more capital when the next great time to buy comes.

And then you’ll be collecting yields of 9%, 10% or more.

That’s more than enough to make up for a few disciplined, low income years isn’t it?

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