On chapter 6 of the intelligent investor with commentary by jason zweig Pg:147 is discussing about junk bonds. I ran through the text however I have some curiosity that I want to get addressed.
Here is the text:
Unfortunately, most junk-bond funds charge high fees and do a poor job of preserving the original principal amount of your investment. A junk fund could be appropriate if you are retired, are looking for extra monthly income to supplement your pension, and can tolerate temporary tumbles in value. If you work at a bank or other financial company, a sharp rise in interest rates could limit your raise or even threaten your job security—so a junk fund, which tends to outperform most other bond funds when interest rates rise, might make sense as a counterweight in your 401(k). A junk-bond fund, though, is only a minor option—not an obligation—for the intelligent investor.
I have bolded out the concept which I didn't grasp. My questions are follows:
1.If I work in a bank and interest rates are rising then how can it put me in a job security risk since banks will have more profits with higher interest rates and there is not need for employee layoff.
- What does it mean when it says that the junk fund will outperform other bond funds when interest rates rise?Doesn't junk fund always provide better return than other bond funds assuming that risk of default is low?