High Yield Investments
When it comes to high yield investments, there isn't an investor out there that doesn't dream of netting high yields. These dreams that propel the investor are fueled by hundreds of stories of wonderful operators who turn thousands into millions in little to no time at all. If you have ever had the misconception that high yields are meaningless; don't believe the hype until you have had a chance to witness it for yourself.
The United States Treasury Department estimates that investors will lose 10 billion dollars each and every year solely from fraudulent high yield scams falsely invoking U.S. Treasury involvement. No one really knows for sure how much is lost through other high yield investments scams, although an intelligent estimate would be a multiple of that very figure.
This figure doesn't even include the primary source of losses that come from high yield investment – default or collapse of the companies issuing the underlying securities. A more realistic estimate of average annual losses through investments seeking high yields during the last decade would be around 500 billion dollars. That's nearly a third of all funds that are placed in high yield investments.
Is to say that high yield investments don't exist? Not really. It does mean however; that by their nature high yield strategies must tap volatile windows of economic opportunity – a concept that defines high yield investments. What this means is that you can't leave your money in the same place year after year and expect to always maintain a high yield from your investment.
Doing so, would be like begging the law of averages to catch up and reduce your investment to an average yielding one, or maybe even worse. Keep in mind that none of the high yield funds that are top performers during the past year are among the top performers over the past two to five years. Always remember that by their nature, high yield investments are a constantly moving target.
The easiest and safest way to invest is by buying sector targeted mutual funds. High yield funds are generally invested 65-80% in debt of sector companies with credit ratings of Baa/BBB. These are commonly known as medium grade companies. That basically means that they have an adequate capacity to pay principal and interest when due but aren't solid enough to be considered investment grade.
To put it in other terms, they make conservative investors very nervous. Managers of these high yield funds put a small percentage into speculative grade bonds if they have some reason to think their issuers are on the upswing. Some aggressive ones will also invest up to 10% directly into the stocks. The small remaining percentage points of the funds will generally stay in U.S. treasuries and cash.
If you consider yourself to be a risk taker who finds life to be meaningless without the possibility of returns above 10% and don't need the money for five years or more, put around 40% of your investment capital into a range of companies that have demonstrated either strong market positions or have shown profits during at least two of the past 5 years. This way, you will have no doubt as to the potential that will come from your high yield investments.
The United States Treasury Department estimates that investors will lose 10 billion dollars each and every year solely from fraudulent high yield scams falsely invoking U.S. Treasury involvement. No one really knows for sure how much is lost through other high yield investments scams, although an intelligent estimate would be a multiple of that very figure.
This figure doesn't even include the primary source of losses that come from high yield investment – default or collapse of the companies issuing the underlying securities. A more realistic estimate of average annual losses through investments seeking high yields during the last decade would be around 500 billion dollars. That's nearly a third of all funds that are placed in high yield investments.
Is to say that high yield investments don't exist? Not really. It does mean however; that by their nature high yield strategies must tap volatile windows of economic opportunity – a concept that defines high yield investments. What this means is that you can't leave your money in the same place year after year and expect to always maintain a high yield from your investment.
Doing so, would be like begging the law of averages to catch up and reduce your investment to an average yielding one, or maybe even worse. Keep in mind that none of the high yield funds that are top performers during the past year are among the top performers over the past two to five years. Always remember that by their nature, high yield investments are a constantly moving target.
The easiest and safest way to invest is by buying sector targeted mutual funds. High yield funds are generally invested 65-80% in debt of sector companies with credit ratings of Baa/BBB. These are commonly known as medium grade companies. That basically means that they have an adequate capacity to pay principal and interest when due but aren't solid enough to be considered investment grade.
To put it in other terms, they make conservative investors very nervous. Managers of these high yield funds put a small percentage into speculative grade bonds if they have some reason to think their issuers are on the upswing. Some aggressive ones will also invest up to 10% directly into the stocks. The small remaining percentage points of the funds will generally stay in U.S. treasuries and cash.
If you consider yourself to be a risk taker who finds life to be meaningless without the possibility of returns above 10% and don't need the money for five years or more, put around 40% of your investment capital into a range of companies that have demonstrated either strong market positions or have shown profits during at least two of the past 5 years. This way, you will have no doubt as to the potential that will come from your high yield investments.
posted by Ash @ 4:21 PM
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