The Big Screen: Junk Bond Funds Much Less Mean Than a Junkyard Dog

Junk bond funds are taking off, but if you don't choose carefully they can live up to their name.

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Like those credit card companies that offer plastic to folks who have a sketchy financial history, junk or high-yield bond funds invest most of their money in bonds issued by young or struggling companies that get low credit ratings from agencies like Moody's or Standard & Poor's. To compensate investors for that risk, these companies issue their bonds with high interest rates or yields. So, these funds can earn solid returns and generate high income too if they study companies carefully and manage to avoid bonds issued by shops that welsh or default on their bonds. See our Investing Basics section for more background on bonds, junk bonds and junk bond funds. ...