“Junk” Bond Defaults

I have often written positively about the use of junk bonds. I have mentioned why they ought to be bought in the form of low-cost mutual funds and indexed ETFs and why their use ought to be arranged in accordance with “duration”principles.

The fact that they are of lower quality is meaningless if their purchase is in the form I mention; you get diversification.

During 2011 and into 2012, the average default rate for this class of bonds was about 2 ½%, low as the range can go as high as 10% at times. But even if the latter rate is reached, the return on such bonds factors in that additional risk. (See the Earl J Weinreb NewsHole® comments.