Every investor has different goals in mind when forming their investment portfolio. Your financial advisor makes investment recommendations they believe will help you achieve these goals after doing their due diligence. Many investors are recommended junk bonds as a way to secure gains, as junk bonds can produce high returns.
However, these types of high-yield investments can also be high risk and aren’t a suitable investment for many investors. Read on to learn more about what junk bonds are, how they work, why they’re risky, and what you can do to recover substantial-high yield investment losses. For individualized help, reach out to a trusted investment loss lawyer.
Key Takeaways
- Junk bonds (high-yield bonds) are debt securities issued by lower-rated borrowers, offering higher interest payments in exchange for significantly increased risk of default compared to investment-grade bonds.
- While they can generate strong returns through higher yields, junk bonds are inherently risky because the issuer’s weaker credit quality increases the likelihood of missed payments or total loss if default occurs.
- When high-yield bonds are recommended without proper disclosure of credit risk or are unsuitable for an investor’s objectives and risk tolerance, investors may have grounds to pursue recovery through FINRA arbitration or other securities claims.
What Are Junk Bonds?
Junk bonds, also commonly referred to as high-yield bonds, are often touted as an easy way to maximize your returns; a low-risk, high-return investment, if you will. Unfortunately, any investment suggestion described as low-risk, high-return is a red flag.
Although it’s true junk bonds have the potential to produce high returns, there is a significant risk in purchasing high-yield bonds. Here’s how they work:
When you purchase a junk bond, you are essentially giving a loan to an individual or corporation that has a high interest rate. Then, when the issuer repays the loan, you make significant returns because of the exorbitant interest rates.
The Risk of High-Yield Investments
Although junk bonds can be a great way to generate high returns, they don’t come without risk. Remember, you’re purchasing a debt that has been rated below investment grade—you can think of it as a poor credit rating.
And why would a debt have a poor credit rating? Because the issuer is more likely to default on the loan. If such a default were to occur, you could wind up losing substantial losses.
Many brokers will recommend junk bonds without disclosing these risks. When this happens, you may be able to hold them accountable through the pursuit of a complaint with the Financial Industry Regulatory Authority (FINRA).
Contact a Respected Investment Loss Lawyer
If your broker recommended high-yield bonds that were unsuitable for your portfolio, and you suffered considerable losses as a result of their suggestions, you may be able to recover your losses.
Discuss your options for financial recovery with a qualified lawyer at Wolper Law Firm, P.A.. You can schedule your free, no-obligation consultation when you complete the convenient contact form below or call our office at 800.931.8452.
Attorney Matthew Wolper
Matt Wolper is a trial lawyer who focuses exclusively on securities litigation and arbitration. Mr. Wolper has handled hundreds of securities matters nationwide before the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (“AAA”), JAMS, and in state and federal court. Mr. Wolper has handled and tried cases involving complex financial products and strategies ranging from traditional stocks and bonds to options, margin and other securities-based lending products, closed/open-end mutual funds, structured products, hedge funds, and penny stocks.
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