High Yield "Junk" Bonds

 

Be wary of High Yield "Junk" Bonds in your Portfolio

Many retired investors seek income from their portfolios. An investor whose main goal is "income" will usually have a high concentration of bonds and other income-producing investments in their portfolio. As with any investments, there are risks associated with bonds. Unfortunately, investors are not always made aware of the potential dangers by their financial advisers.

The risks vary dramatically with different kinds of bonds and with different credit ratings.  In recent years, with interest rates low, brokers have more frequently recommended lower rated, higher yielding bonds. The higher the yield, the greater the risk of principal loss (an investor is loaning money to a company in order to get a fixed rate of return). Interest rates above 5% may leave an investor at greater risk for losses at a time in their lives when they are unable to replace lost principal. 

Some bonds that promise high return, for example, may also be issued by a company which is a credit risk and may default. If the company cannot afford to pay its investors back the yields they promised, not only will the investor’s source of fixed income dry up, the company may become insolvent and the investor loses principal as well. Every cent. If these lower quality recommendations led to losses and were unsuitable for the investor’s risk tolerance, the broker or adviser may have violated FINRA suitability standards with which every broker must comply.

Investors whose brokers have violated FINRA rules may have several available remedies, from a traditional negligence or fraud lawsuit to arbitration. A knowledgeable attorney can help you understand your options if you are in this situation.

Contact an Experienced Texas Lawyer to Discuss an Investment Fraud Claim

Experience can be critical when taking on an unscrupulous or negligent financial adviser. For decades, the lawyers at Ajamie LLP have assisted investors throughout Texas, including Austin, Dallas and Houston. To schedule a free case evaluation with an experienced securities lawyers, call 713-860-1600 or email info@ajamie.com.