No. of Recommendations: 3
Junk bonds with the same yield (in this market, that usually means a significant discount on the price). I'd take a stock I can sell before it hits zero than a bond than may simply default and go into bankruptcy even though it is trading at 60% of par.

I own some junk bonds, but I own them for speculation and not income. I usually win but just two weeks ago I received a bankruptcy notice on one that was trading in the $60 range.


I only own junk bonds through a well- and actively-managed fund (ETF to be precise), HYLD. The managers' background is in good part in "vulture" investing (focusing on recovery from bankruptcies), even though they haven't had a chance to show it off in HYLD especially (as bankruptcy rates have been super-low for years now!-).

I wouldn't own individual junk bonds any more than any other specific bond -- I used to, but I've come to realize actively managed funds with reasonable expenses are way better in the debentures world (no indexing makes sense there, esp. in junk!). I happily pay up for HYLD to do their own credit assessment (seriously, who trusts S&P, Moody's, and Fitch, AT ALL any more, after the subprime-mortgage debacle?!) -- they deliver better returns than indexed junk ETFs already, and when the fecal substance hits the fan (as inevitably it will), *watch out*!-)

I don't see my HYLD somewhat-overweight position as being at all speculative, within the context of a well-diversified debentures portfolio (which itself is about 35% of my overall portfolio, with 65% in equities AND a little options on equities and indices).

What's speculative? E.g, penny stocks (I don't have any of those)...:-)

Is any of MY portfolio speculative? Maybe -- exposure to NLY with its double-digits yield might fairly be classified as such, for example.

However, _in the context of a well-diversified portfolio_, SOME exposure to risky areas such as mortgage REITs is not "speculation", or, not necessarily -- as long as you have a case for low or ideally negative correlation to the core of your portfolio (e.g: NLY's beta 0.20, NKX's -0.08, &c), small positions in otherwise-"speculative" securities are actually feasible as helpful, prudent diversification!-)
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