High Yield Risk

In this episode of Talking Real Money, Don and Tom take aim at “magical” high-yield investments, focusing on why junk bond funds often behave more like risky stocks than stable bonds. Drawing on research from Larry Swedroe, they explain how high fees, high turnover, and economic sensitivity undermine the appeal of high-yield funds—especially during recessions. They reinforce the core principle that higher returns always mean higher risk and argue that investors are usually better served taking risk in equities and safety in high-quality bonds. Listener questions cover HSAs in retirement, Roth IRAs for young investors, backdoor Roth conversions, and the Vanguard Star Fund. The episode closes with discussion of RetireMeet 2026 and the importance of long-term, disciplined investing.

0:04 Opening: Wanting high returns with no risk

1:02 Introduction to “magical” high-yield investments

1:10 Larry Swedroe’s research on junk bond funds

2:20 Investment-grade vs. high-yield bonds explained

4:29 Bankruptcy risk and bondholder losses

5:49 Returns, volatility, and stock-like behavior

6:36 Risk-adjusted returns and Sharpe ratios

7:47 Why passive beats active in junk bonds

8:35 2008 losses in high-yield funds

9:36 “Yield is for farmers” and risk perspective

10:42 Why higher yield always means higher risk

11:08 Bonds as portfolio ballast

12:17 Why equities are better for risk-taking

12:27 HSA investing for medical expenses

13:56 Roth IRA for grandson with long time horizon

15:18 Backdoor Roth conversion tax question

17:57 Vanguard Star Fund discussion

19:03 Active vs. index fund comparisons