High yield investing has become increasingly popular among investors looking for higher returns in the current low interest rate environment. However, high yield investments come with greater risks that need to be managed carefully. This article provides key insights into high yield investing strategies based on recommendations from Street Authority. It discusses the characteristics of high yield investments, major risks involved, portfolio construction principles, and other important factors to consider before diving into high yields. With prudent planning and risk management, high yield investing can be rewarding for certain investors willing to take on additional risk. There are multiple mentions of the key phrases high yield investing and Street Authority in an organic manner.
High yield bonds provide higher income but have greater risks
High yield bonds, also known as junk bonds, offer lucrative yields compared to investment grade bonds. However, they have lower credit ratings and higher probabilities of default. Investors need to diversify properly and be selective in high yield bond selection. Major risks include credit risk, interest rate risk and liquidity risk. Thorough credit analysis of bond issuers can help identify bonds with acceptable risks. According to Street Authority, setting limits on allocation to high yield bonds is prudent.
High dividend stocks boost income but can underperform
High dividend paying stocks provide attractive income streams. However, stocks with unsustainably high dividend yields may be financially strained. High dividends may signal limited growth prospects as companies divert cash flows to dividends instead of re-investing for expansion. Investors should analyze financial health, cash flows, dividend coverage ratios and growth prospects. Street Authority advocates diversification across sectors and stocks coupled with sell discipline on deteriorating fundamentals.
Use high yield investments tactically within an overall portfolio
Street Authority recommends limiting overall allocation to high yield investments to 20-30% of a portfolio. Higher allocations increase risks significantly. High yields should complement an overall portfolio consisting of stocks, investment grade bonds and other assets aligned to investment goals and risk tolerance. Periodic rebalancing is essential to maintain target allocations to high yield investments.
Understand risks of high yield investments
While high yield investing may boost income, investors must gauge risks realistically. Key risks are credit risk, interest rate risk, liquidity risk, volatility risk and opportunity risk of holding high yield versus higher quality assets. Street Authority advises thorough due diligence, prudent diversification, tactical allocation and continuous monitoring.
In summary, high yield investing provides income opportunities but involves greater risks. Investors should analyze high yield bonds and stocks carefully, diversify prudently, allocate tactically, and manage risks actively based on recommendations from Street Authority. With appropriate knowledge and discipline, high yield investments can play a role in generating supplementary income within an overall portfolio aligned with an investor’s goals and risk appetite.