The Only Guide to a Winning Bond Strategy You'll Ever Need by Larry E. Swedroe

Author:Larry E. Swedroe
Language: eng
Format: epub
ISBN: 9780312353636
Publisher: St. Martin's Press

The Role of High-Yield Bonds in the Portfolio

The main purpose of fixed-income securities for most investors is to provide stability to their portfolio, allowing them to take equity risk. While it is true that high-yield debt has nonperfect correlation with equities, the correlation may increase at just the wrong time—when the distress risk of equities shows up. Therefore, investors should always remember that correlations are not static values.

There are several other issues that impact the decision on whether or not high-yield securities should play a role in the portfolio. They include liquidity, asset location, and the distribution of returns.

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