High Yield Bond Funds Key Terms

Get your investments off to a good start with high yield bond funds key terms

When investing, it's important to diversify your funds in order to prevent major losses. High yield bonds are one type of investment vehicle that allows you to do this. After deciding to invest in junk bonds, you'll need an online brokerage or a mutual funds company to make the purchase. Check the total returns in order to decide which ones to buy. Get started by learning the following terms.

Junk bonds

Junk bonds is another name for high-yield bonds. The name comes from the fact that high yield bonds do not come from reputable companies. The company that issues junk bonds is more risky and may default on the bond, hence the name "junk."

Online brokerage

An online brokerage allows you to purchase high yield bonds for investment. Online brokerages are less expensive than a traditional fund manager, but they do not offer the same level of advice and service. Investors must do a lot of the leg work on their own.

Mutual funds company

Some people choose to purchase high yield bonds through a mutual fund. A mutual fund will purchase junk bonds from many different companies, which allows you to spread out the risk. You can invest this way through a mutual funds company.

Tax-free investing

In many cases, investors are required to pay taxes on the money they make from their investments. Municipal bonds, however, are tax-free. Tax-free investing means that you can invest your money without having to pay high taxes.

Total returns

The total return is a way to measure how well a high yield bond has performed in the past. It shows, on average, the types of returns that investors have made on their investment. While this does not guarantee that the fund will continue to perform that way, it helps people to form a general idea about the fund.

Exchange traded funds

Exchange traded funds, or ETFs, are investment companies that only sell shares of their stock in large blocks. They typically track a particular industry.
Securities Exchange Commission explains exchange traded funds.