Investing in debt has long been practiced by many smart investors – those who are risk averse and others willing to accept a certain degree of risk of a rate corresponding increase in expected return. (For help in achieving high yields, check out disciplined strategy key to high performance.)
TUTORIAL: Investing 101
In mid-August 2011, the U.S. government debt had been downgraded by Standard & Poor service of the qualifications of a no-risk triple-A rating to a rating of AA +, one notch below, but it certainly does not indicate a significant risk that the U.S. default on its debt.
At the same time, the U.S. debt ceiling had been raised by an agreement with the Obama administration and U.S. Congressand the Federal Reserve, Ben Bernanke, pledged to keep U.S. Treasury bonds in the same low interest rate – nearly 0% yield – for the next two years. With these factors in mind, many investors sought alternative or nontraditional debt to invest in.
Some of these debt instruments, consumer loans, micro loans, factoring, direct loans for real estate and mortgage-backed securities.
Each of these debt instruments works differently, their yields are variable and the degree of risk is different for everyone. Junk bonds in the hedge fund debt, once a popular way to speculate rather than invest, will not be considered in this article due to its volatility, uncertainty and risk.
