Junk Can Be a Good Investment

by Kristina on March 2, 2011 · 1 comment

One man’s trash is another man’s treasure; or should I say one man’s trash is another man’s investment.  Over the past few years investors have been searching for alternative investments to their high risk stocks and mutual funds. Bonds have become a very popular secure investment option.  Different types of bonds available on the Financial Market include Government Bonds, Corporate Bonds, Foreign Bonds, and Junk Bonds.

According to CNN Money Junk Bonds are still good investments.  Junk Bonds are commonly known as High Yield Bonds.  Bonds are rated by grades according to their security and risk of default. AAA Bonds such as Federal Government Bonds are considered to be the safest bond investment because they have the lowest risk of default.  Junk Bonds have a rating of BB or lower.  They can be very profitable because they offer a high yield. But they can also be high risk because they invest in companies that may become insolvent.  If a company goes bankrupt they will default on their bonds and they will not be able to repay investors.

Here are some other places to invest our money according to Daily Finance:

Commodities.   Sugar, wheat, and oil are all examples of commodities.  Daily Finance suggests that we invest in a broad range of commodities through a mutual fund or an exchange traded fund.

REITs otherwise known as Real Estate Investment Trusts.  REITs invest in various real estate investments such as mortgages and individual properties such as hotels.  They offer tax advantages and generally high yield rates of return.

Inflation Protected Bonds.  An increase of inflation could mean a decrease in the value of our dollar and therefore our investments, unless we hold Inflation Protected Bonds.   Types of Inflation Protected Bonds are Real Return Bond Mutual Funds or Treasury Inflation Protected Securities.

Australian Dollars.  Investing in foreign markets and currencies can be very profitable and/or very risky.  If you are considering investing in a foreign currency I suggest that you do so through a Foreign Bond.  This will give you exposure to a foreign market without the high risk of investing directly in a foreign currency.

Municipal Bonds. Municipal Bonds can be a good investment because bonds are a fixed income investment.  However, they can also be very risky because the odds that a municipal government will become insolvent are higher than the risk of a federal government going bankrupt.  I like investing in municipal bonds because it invests in our local government.

Large Cap Stocks. I believe they are a great investment because they invest in large well established companies that have a large capital investment.

Dividend Stocks.  These are a long term investment that pays a regular stream of income on a quarterly or annually basis in the form of dividends.  Companies that pay dividends are usually Financial Institutions as well as large corporations who earn regular profits.

Other good investments include Health Care and Consumer Staples, Stocks with Low Debt to Equity Ratios, Oversold Stocks, and Cash.

(Photo by KalleBoo)

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