3 Tips To Minimize Risk In High Yield Funds

31 July 2015
 Categories: , Blog


High yield funds allow people that invest in them to be able to receive money back at a higher interest rate. However, in exchange for this higher interest rate, the risk of investing in a high yield fund is also significantly higher than investing in other funds. You have to risk more in order to get a higher reward.

When you are choosing a high yield fund to invest in, here are some tips to help minimize your risk and increase the chances that you will be financially successful in this endeavor:

1. Look for Funds That Invest With Companies That Have Valuable, Physical Assets

The first way that you can minimize your risk is to try to find a set of high yield funds that invest mostly in companies that have a large number of valuable, physical assets. These assets should include real estate, manufacturing equipment that is up to date and not likely to need to be replaced, and factories.

You want to look for companies that have these assets when investing because, if the worst should happen and the company should go bankrupt, they will be able to sell off these assets in order to help you and your fellow investors get some of you money back.

2. Look for Strong Default Schemes

When you are looking for high yield funds to invest in, you want to contact the fund manager directly and ask him or her about what happens if a company that the fund invests in should default. You want to look for a compensation default scheme that is strong enough to almost guarantee that you get your money back.

Look for schemes that will give you as close to an equal amount of money that you initially invested in case there is a default. By looking for this type of default scheme, you can reduce your risk and increase the chances that you will get your money back.

3. Look for Funds That Encompass Many Different Industries

Finally, you want to make sure that your high yield fund has companies that span multiple different industries. For example, if you had invested only in steel when the steel industry collapsed, you would have lost all of your money. By spreading out your investments among different industries, then if one industry fails, you'll still have your other investments to fall back on.

For more information, talk to a high yield fund manager or a company like Jakob Pek Fund.