Investors have been pouring money into high-yield bonds, which typically pay more interest for taking on greater risk. But these investments are also known as “junk bonds,” and financial experts urge caution before piling in.
After a rocky start to 2022, U.S. high-yield bond funds received an estimated $6.8 billion in net money in July, according to data from Morningstar Direct.
While yields have recently dipped to 7.29% as of Aug. 10, interest is still higher than the 4.42% received in early January, according to the ICE Bank of America U.S. High-Yield Index.
However, junk bonds typically have greater default risk than their investment-grade counterparts because issuers may be less likely to cover interest payments and loans by the maturity date.
“It’s a shiny metal on the ground, but all shiny metals are not gold,” said certified financial planner Charles Sachs, chief investment…