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FINRA WARNS: Don’t Chase Yield!

Last Updated:  July 26, 2011

Yesterday FINRA warned investors about chasing yield with an official investor alert. It seems as rates have dropped to historic levels, and remained there, investors are left searching (which may be to their own demise) for higher returns.

Searching for higher returns has led to enormous inflows to floating rate bond funds, other junk bond funds, structured retail products and other leveraged products. Many of these investments are largely unregulated.

The risks are there. For those thinking they’re getting a safe extra yield you probably think you can get a free lunch somewhere today as well.

The fact is risk and return are correlated. Those investments pay you more because they’re far riskier than you’d expect. Just look at the floating rate muni’s that seized up a few years back.

It’s a fools game – chasing yield. Be smart with your money, build a diversified portfolio of asset classes that have low expenses and turnover, manage it effectively with constant reviews and rebalancing when necessary. You’ll be far better off than chasing pie in the sky yields…

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