Bad Times, Good Junk

High-yield bonds will prove their worth as the economy rebounds next year

Now that we're in a recession, a lot of junk looks more valuable: those "classic" sport jackets in your closet, the aging but paid-for SUV in your driveway--and, get this, the bonds of companies with poor credit. That may sound crazy at first. Recessions are always tough on companies operating at the edge of solvency--those most likely to have high-risk, high-yield junk bonds outstanding. Yet diversified pools of these bonds typically do well at this point in an economic cycle.

As ever, diversification is the key. Only the wealthiest and most sophisticated investors should dabble in individual junk-bond issues. The risk...

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