Dealing With Junk in the Trunk

As a former Camaro driver, it hurts to hear people calling General Motors "junk."

Back in the 1980s, we Jersey girls took our cars -- and our hair -- very seriously.

So when Standard & Poor's downgraded its ratings of GM to speculative grade, or junk status, last week, I couldn't help but take a trip down memory lane. Maybe if more of us drove Camaros instead of gas-guzzling SUVs, the world would be a better place? (Granted, Camaros aren't exactly hybrids and hairspray does kill the ozone.)

But my feelings aren't the only things hurting these days. If you hold GM bonds, your portfolio could be in a painful position right now too. On the day of S&P's downgrade last Thursday, the price of GM bonds maturing in 2033 plummeted 4.454 to 74, or $56.77 per $1,000 invested, according to The Wall Street Journal, its yield rising to 11.494%.

Since GM is the largest corporate debt issuer out there, there are plenty of folks wondering what to do with these junk bonds.

So you have some decisions to make. You have to revisit your portfolio and potentially make some changes in the diversification of your bond holdings. And if you own the GM stock as well, you may now have too much risky exposure to the company.

Junk Your Debt

Standard & Poor's blamed GM's reliance on big SUVs for the downgrade to junk, but underfunded pensions and rising health care costs aren't helping its situation much either.

And while the market has been losing patience with GM for some time now, it has basically been treating all GM bonds as junk anyway. But you may not have been.

If you created your portfolio years ago and were originally looking for high-quality corporate bonds because your investment objective was to be safe, buying GM was a good choice at the time.