High Yield Investment Opportunities

Yield and risk go hand and hand when discussing investments. It is important to think carefully about high yield investment opportunities, as they bring about just as many advantages as disadvantages. Be sure to carefully research all opportunities before committing to any high yield opportunity.

Investment Grade Bonds

Bonds are essentially an “I owe you” from a company. They borrow money from the markets and pay better rates than you can get bank. The rates are not that much better than the bank, but the investment grade is a safer bet due to the longevity of the company. Some companies offering bonds are General Electric, IBM and AT&T, and are usually a five-year bond with a three to four percent yield.

Preferred Stocks

Probably the easiest way to get high yield investments is to buy a preferred stock from a financial institution. Most of these institutions have regulatory limits on the amount of debt they can carry, so preferred shares have high yields. Preferred shares are stocks that act like a bond and are more profitable to common stocks. Yields are typically five to eight percent, but there is no maturity and can fluctuate greatly in price.

Junk Bonds

Junk bonds are riskier and have a higher return than investment grade bonds. Junk bonds are issued by companies who are not well established or have financial difficulties. Some common companies selling junk bonds are Ford Motor Company and J.C. Penney. They may be profitable companies, but do not have a high enough rating to be considered an investment grade. The junk bond has a higher interest, lasts about five years and has an eight to 10 percent yield.

Unit Trusts and Closed End Funds

Many unit trusts are structured to pay higher yields due to dividends and returns of principal payments. Closed end mutual funds have a fixed number of shares that can be purchased. Yields range from five to seven percent, but prices change often and may be more expensive then they end up being worth long-term.