What if you bought US junk bonds in 1990?
Bonds & cash · High yield. The hindsight answer, year by year, against the only benchmark that matters.
Could you have picked it? Play13.5× · S&P 500 same money: $19,429
$1,000 in US junk bonds at the start of 1990 would be worth about $13,500 today. A plain S&P 500 index fund over the same years would have made more — the boring option won.
The story
Junk bonds, politely called high yield, are loans to companies with weak credit ratings, which pay more interest to compensate for the higher chance of default. The market had been popularised in the 1980s by Michael Milken at Drexel Burnham Lambert, which collapsed in early 1990 amid scandal, and defaults spiked in the 1990-91 recession. Investors who bought anyway were well paid as the economy recovered.
The pattern repeated. Defaults rose in the early 2000s after the telecom bust, when companies such as WorldCom failed, and in 2008 prices fell steeply as panicked investors fled anything risky, before a sharp rebound in 2009. Start-of-year snapshots smooth over these episodes, but they were frightening to live through. The 2020 Covid scare was cut short when the Federal Reserve said it would buy some high-yield debt. Over the long run the steady coupons compounded into returns closer to stocks than to Treasuries, with drawdowns that tended to arrive at exactly the same time as stock market crashes.
The lesson: High-yield bonds behave more like equities than bonds in a crisis, so they add income but little protection to a portfolio.
$1,000 invested at the start of each year
| Bought in | Price then | Worth today | S&P 500 would be | Multiple |
|---|---|---|---|---|
| 1990 | $100 | $13,500 | $19,429 | 13.5× |
| 1995 | $170 | $7,941 | $14,783 | 7.9× |
| 2000 | $240 | $5,625 | $4,626 | 5.6× |
| 2003 | $270 | $5,000 | $7,727 | 5.0× |
| 2005 | $380 | $3,553 | $5,763 | 3.6× |
| 2007 | $450 | $3,000 | $4,789 | 3.0× |
| 2008 | $460 | $2,935 | $4,626 | 2.9× |
| 2010 | $500 | $2,700 | $6,071 | 2.7× |
| 2012 | $620 | $2,177 | $5,312 | 2.2× |
| 2015 | $760 | $1,776 | $3,301 | 1.8× |
| 2018 | $880 | $1,534 | $2,519 | 1.5× |
| 2020 | $990 | $1,364 | $2,092 | 1.4× |
green = beat the S&P 500 · red = lost money
Best entry point in our set: 1990, turning $1,000 into $13,500. The S&P 500 from that same year: $19,429.
On this day
Now try it without hindsight. The wheel decides the year and the asset class, you pick the position, ten seconds a pick, and we simulate to today. US junk bonds is one of 258 positions on the wheel — including the ones that went to zero.
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