12% Bonds: The Ultimate Guide for High-Net-Worth Investors

They say cash is king, but it never holds onto power for long. In 2022, as central banks around the world ratcheted up interest rates in an effort to tame inflation, cash was seen as a hedge against market volatility. As the yield on bonds plummeted, investments in instruments such as money market funds, which act similarly to cash, increased.

However, the financial weather is changing. The next few years appear to be ones in which the lowering interest rates will become the norm. As this shift takes place, you’d be wise to shift your capital into bonds that are poised to offer stable returns. For investors seeking the best returns in this market, high-yield investments like company bonds that return 12% annually are a fantastic choice. 

Savvy investors with the highest returns know that 12% bonds are a stellar vehicle for parking your capital and realizing steady gains. But what exactly are 12% bonds, and how do they work? How can they help you, as a high-net-worth individual, beat the market and realize consistent gains to secure your future?

What Are 12% Bonds and How Do They Work?

In the world of company bonds, a 12% bond is merely a subset. Essentially, a bond is a company getting a loan from private investors rather than directly from a bank or other financial institution. A company will issue bonds because it needs to raise capital. Investors buy the bonds and receive a coupon stating the interest rate the investor will earn annually. In the case of 12% bonds, the investor would earn 12% each year.

Bonds are a great way to lock in a fixed rate of return over a specific period, but like any investment, they carry a certain amount of risk. A 12% bond is often seen as a riskier investment, which is why it offers such an attractive yield. In comparison, most company bonds yield an average return of about 5%, so a bond that pays out twice that much will be issued by a company whose financials are not as strong or vetted, for example, a startup or one going through a period of restructuring.

However, for risk-tolerant high-net-worth individuals, a 12% bond doubles your return while also protecting you against market volatility. 

Why High-Yield Bonds Are Attractive to Investors

Comparing Yields on Bonds Across Investment Options

As we mentioned above, the typical yield on company bonds is around 5%, so getting more than twice that on your investment really makes 12% bonds stand out. 

Let’s look at some example investment options. If you have $10,000 to invest and you invested in a safe corporate bond, such as Microsoft, you would only earn a 2.4% annual return on your investment. That’s just $240. 

On the other hand, a high-yield 12% bond would net you $1,200 over the same period.   

Factors That Impact Bond Yields

In the example above, we can see a striking difference in bond yields and these can clearly make a huge difference to your returns. But why do bond yields vary so much, and what factors impact them? 

Well, first off, market conditions are a huge contributing factor overall.

Investors tend to favor stability over uncertainty, and if the market swings wildly, they will demand higher rates of return to compensate for taking this risk. 

A large company, such as Microsoft, is not going anywhere and will be able to weather any market storm that arises. It also possesses an enviable AAA credit rating, which translates into a perception of absolute safety regarding your investment. If you invest your money in a Microsoft bond, you will certainly get your return. That’s why the rate of return, or the interest rate, is so low. 

Assessing Risks Associated with High-Yield Bonds

Credit Risk and Bond Issuers

As with any investment, an investor assumes a certain amount of risk with a company bond. The risk here is that the company will fail to meet its obligation to repay the principal and interest, and the investor will lose their money. This could happen if the company hits hard times or declares bankruptcy, for example.

Doing thorough research into the financials of a company bond that you’re considering purchasing is an important way to mitigate your risk. You need to be fully aware of how much risk you’re taking on and the likelihood of being paid back. A company with a weaker credit rating will try to attract investors by offering higher bond yields.  

Market Volatility and Liquidity Concerns

Liquidity is a perennial concern for bond market investors. This refers to how easy it is to buy and sell a bond at a favorable price. Bonds issued by high-value, stable companies are generally quite liquid, meaning they trade easily on the market. On the other hand, bonds with higher yields, such as a 12% bond, may sell less easily, especially in times of market volatility. 

This is one factor that can be mitigated in a few ways when following a solid investment strategy. For example, it’s generally better for investors to hold their bonds until maturity if they are concerned about liquidity so that they don’t sell the bond in adverse market conditions. 

Another way to mitigate risk is to invest in corporate bond ETFs so that you can spread out your risk among various companies and protect yourself should the market go south. 

Who Should Invest in 12% Bonds?

Over the years, we’ve seen a few characteristics of investors with the highest returns who typically benefit from 12% bonds. These tend to be high-net-worth individuals capable of taking on the extra risk involved with a 12% bond; their focus is on long-term gains, and they ensure their portfolio is sufficiently diversified just in case of any downturns. 

Crucially, they also stay on top of market movements and their investments. There are times when bond investing isn’t as simple as ‘set it and forget it,’ and these investments need to be actively managed. These investors also recognize the value that expertise can provide and take advantage of financial advice from professionals who spend all day analyzing statistics and market trends. 

Our analysts at Platinum Property Club know that if you’re a high-net-worth individual, you likely don’t have a lot of time on your hands to pour over reports and credit ratings. To get the most out of your 12% bonds, your investments should be monitored by our skilled professionals with intimate knowledge of market timing to hit the returns you require consistently. 

How to Start Investing in 12% Bonds

Researching Bond Options

If you’re looking to start investing in 12% bonds, you need to start with your research. Knowing what to look for is the most important factor in determining where to invest your money. 

Finding trustworthy bond issuers starts with assessing their credit rating. Anything BBB- and above is what’s known as ‘investment-grade’ and is usually of lower risk and lower yield. You might find 12% bonds in the BBB- and lower category, but this is only one measure of the quality of the bond. You’ll also need to look into the company’s industry and determine its continued growth, as well as consider whether the company’s debt-to-income ratio is tolerable for your situation. These indicators will give you an idea of the risk of your investment.

Balancing Bonds with Corporate Bond ETFs

Diversifying your portfolio by spreading your investments throughout company bonds and corporate bond EFTs is a surefire way to maximize your returns and shield yourself from downturns in the market.

For instance, direct investment in a corporate bond is usually less liquid, especially at higher yields. Corporate bond ETFs, on the other hand, trade frequently, so if the market takes a turn for the worse, you should be able to limit losses easily by selling corporate bond EFTs.

That said, a direct bond investment will usually allow a bit of customization based on your preferences. You can shop around for a bond that has a high rate of return and a maturity date that suits your goals. 

Final Thoughts on High-Yield Investments

When looking around for a high-yield investment offering stable returns over the long haul, including 12% bonds in your portfolio is a great way to maximize your returns and realize gains that you can’t get anywhere else. However, you need to look at the yield on bonds you’re aiming for and balance that with strategic diversification to achieve your financial goals. 

Remember, any investing—even in high-yield investments—is all about playing the long game. With the expertise of Platinum Property Club by your side, we’ll create a bespoke investing plan for you that will have you receiving high returns and solidifying your future for years to come. Your 12% bond investment can be a solid source of income as long as it has portfolio managers behind it who are able to digest the particulars of whatever the market throws at them.