Are ‘Floating-Rate’ Funds Safe?

9 Year Mortgage talks ‘Floating Rates’

Investors have converged on these high-yielding funds, but regulators say they may be overlooking some of the risks. 9 Year Mortgage says the hottest-selling funds on the market have drawn plenty of praise and billions of  dollars in the last year.  They have now  inspired a warning from regulators, who think these investments may be riskier than most realize.  Continue reading and 9 Year Mortgage will reveal some of the risks.9 Year Mortgage - Floating Rate Fund

9 Year Mortgage and ‘Floating Rates’

9 Year Mortgage supposes that investors like the ‘floating rate’ funds because of their high yields and protection against rising rates. 9 Year Mortgage asserts that ‘floating rate’ funds have gathered $22 billion in net inflows so far this year — that is more than any other fund category. However in July, the Financial Industry Regulatory Authority issued an investor alert warning that the funds earn those yields by investing in bank loans, which can carry higher risk of default than investment-grade bonds. They are also traded over the counter, instead of in an exchange, so they are less liquid. 9 Year Mortgage thinks that investors may be chasing the promise of higher returns without really understanding the higher risk involved in these funds. Even with these risks, investors have flocked to the funds, which offer yields that can top 6% — better than most stock dividend funds, real estate investment trusts and bond funds. 9 Year Mortgage says that this category has quadrupled in size since 2008 and now claims more than $63 billion in assets. 9 Year Mortgage believes it is all about yields, they are spinning off income at a level higher than investment-grade products are capable of, and that is why it gets a lot of attention.

9 Year Mortgage With The ‘Floating Rate’ Problem

9 Year Mortgage says the problem, is that investors are very desperate for returns in an environment where traditional bonds aren’t yielding great  and stocks have been extremely fickle. The reason floating-rate funds offer higher yields is because they are riskier. 9 Year Mortgage affirms that the funds buy loans that banks make to companies and those loans aren’t securities that can be traded on a regulated exchange. This means it is more difficult to figure out how much each loan is worth, because investors can not refer to a market price set by the activity of other investors. The companies that are taking out these loans have below investment grade credit ratings, so 9 Year Mortgage believes that the companies are agreeing to pay higher interest rates beca9 Year Mortgage - Floating Rate Funduse they have been shut out of cheaper options. 9 Year Mortgage says when people are talking about higher yields it sounds warm and fuzzy, however when you use the term ‘junk’ instead, people become a bit more cautious. Mangers of floating-rate funds agree that they are risky, however they say that they still have plenty of reasons to recommend them. 9 Year Mortgage thinks that some of these funds may loose their appeal in the coming months. Another appeal of the funds is their promise to protect investors from rising interest rates. Fixed-rate bonds would lose value in a rising rate environment because the new bonds would offer a more attractive yield. Floating-rate funds invest in variable-rate loans, so their yield will rise when rates rise. 9 Year Mortgage says that for some investors, this sounds like a better pitch, but that was before the Federal Reserve announced its intentions to keep rates low for the next two years.

Wrapping it Up With 9 Year Mortgage

When it comes to floating rate funds you need to decide if you are willing to take that kind of risk. 9 Year Mortgage says investment professionals say floating-rate funds should be used sparingly in a portfolio, even for investors who are comfortable with the risks. So after reading this, you just need to understand and know if you are okay with the risk. If you are not you know that this is not the best option for you. 9 Year Mortgage suggests that those of you that are looking more into these, it may be a good idea to look at everything you can about them, that way you know exactly what kind of risk you will be taking.

Want to know more about 9 Year Mortgage check out the 9 Year Mortgage Difference article.

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