The Seven Sins of High-Yield Investing

Sin #2: Paying Big Premiums Over Net Asset Value

Most closed-end funds trade at a premium or discount to their Net Asset Value (NAV) for various reasons and can offer excellent
investment opportunities. Locking in a high-yield payout in a discounted fund can make for some exciting total returns.

Yet some investors buy into a popular closed-end fund that is trading at an enormous premium to its NAV. Why would anyone pay
up to 25% for shares of a hot closed-end fund when they could buy that same basket of stocks or bonds from their broker at real
market value? It’s a bit insane.

It happens all the time in the closed-end high-yield bond funds, or as they are commonly called, junk bond funds or covered-call
closed-end funds.

Good closed-end funds that historically trade at a premium to NAV should be purchased when that premium falls
under 10%. So be sure to avoid buying into a closed-end fund trading at a huge premium to its NAV.

NEXT: Sin #3: Receiving a Return of Capital