If you’ve heard the term “junk bonds” before, you might think that they are worthless. But the proper term for “junk” in this sense is “high-yield” and they are not necessarily a bad investment. Investing is all about risk and return. High-yield bonds simply offer a better coupon rate due to the fact that they carry more risk. Moreover, the risk-return trade-off for high-yield bonds may actually be better than that for stocks.
In other words, don’t let slang terms such as “junk bond” scare you away from these securities. Consider the following characteristics to make an informed decision on whether or not to invest.