High‑yield bonds: are they safer or riskier than stocks for someone nearing retirement?

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16 April 2026

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Ask the experts. Paul Angell is on hand to answer your questions about investments. If you'd like a question considered for a future edition, send it in now.

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I’m approaching retirement and want to take some of my money out of equities. I was looking at high-yield bonds, but are they safer?

Neil   

Paul Angell, AJ Bell Head of Investment Research, says:

It can be tricky to determine when you should start shifting assets as you near retirement and where to move them to.  

Many people start to de-risk their investments around five years before retirement, but as you imply in your question, that doesn’t necessarily mean sticking all that money in cash or low-risk bonds like gilts. 

Keeping some of your money in investments that grow more quickly means a better chance your pot will last through retirement. Balancing these factors of safety while still looking for some growth may lead investors like yourself to high-yield bonds.  

How bonds work: 

Bonds are a form of debt issued by companies and governments. When an investor purchases a bond, they will receive income periodically through a coupon payment which is set when the bond is issued. This is established as a percentage of the bond’s worth. At the end of the bond’s lifespan, if the bond issuer is able, the starting value of the bond will be paid back to the investor.

Understanding how high-yield bonds function, and why they are classified that way, is key to knowing if they are the right fit for you. As it says in the name, high-yield bonds are investments that offer a larger rate of interest for the money the issuer is borrowing, meaning a bigger payout for the investor if all goes well. 

The reason these bonds pay a larger interest rate is because ratings agencies, like Moody’s and Fitch, have decided they are less likely to pay back this money at maturity than a top-rated company. This is called defaulting on the payment. The bond issuers have to offer a bigger reward to entice investors to take the risk. 

High-yield bonds can come in the form of government bonds from emerging markets, or from companies that are rated lower by ratings agencies. Here’s a few examples of bonds featured in the Invesco High Yield Fund, which is on AJ Bell’s Favourite Funds list. You may recognise quite a few of the company names. Many of us use Virgin Media for our phones, and Stonegate Pub Financing is the owner of Be At One bars, as well as many other pubs that might be near you. The coupon you see on these funds means that if you were to hold this bond from issuance, this would be the yearly yield paid out. 

Because bonds can be complicated to access for individual investors, many use a bond fund for this purpose. Investing through a fund also creates diversification, as the fund will hold a variety of bonds, meaning you aren’t reliant on a single company paying you back. A manager will hold a portfolio of bonds that they buy and sell at different points rather than always hold to maturity, which can mean a bit of extra return on top of what the bonds offer, if they can make a capital gain. 

What kind of returns can you expect?  

The returns for high-yield bonds are determined by two main factors: the rate that a benchmark such as US government bonds are yielding, and what we call ‘credit spread’ which is the additional return for the risks associated with holding a lower-quality bond. 

High-yield bonds have performed well on the surface in recent years. Over the past five years to 24 March, the Investment Association’s global high-yield bond sector has returned 19%. Last year, it returned 5%. In comparison, the Investment Association’s global corporate bond sector has returned 4.4% in the past one year, and 5.7% over the past five years. While the past year’s returns haven’t looked so different for the two sectors, high yield has been the much better performer over five years. 

What’s changed? 

Five years ago, the interest investors were getting from lower-risk bonds was low, but the premium they were receiving from taking on risk for high yield was high, so that’s where most of the return came from. Now, the interest investors are getting on benchmark bonds like US treasuries is quite high, but there is not much premium for taking on more risk. 

When considering these returns, it’s important to factor in inflation, which at its latest reading, was 3% on a yearly basis in the UK. So, even though we are seeing returns from high yield bonds of 5% in the past year, it’s vital to consider that most of that is being eaten up by inflation.  

What’s to come?   

This environment could be changing in the coming years. Recently, we’ve seen a low rate of defaults among high-yield bonds, meaning companies have paid the loans back. But during Covid, many companies in the high-yield bond space converted short-term debt, which is often paid back in a year, to longer-term ones, which could range from five to 10 years. These longer-term loans are nearing their end now, so we aren’t sure yet if companies will be able to pay them back. The majority should be able to, but it’s an important factor to keep an eye on.  

As we’ve seen in the last year, there currently isn’t as much compensation for taking on high-yield bonds as opposed to lower-risk corporate or government bonds. While we do hold high-yield bonds in some of our AJ Bell funds, we limit this exposure to less than 10% of any fund, due to our focus on diversifying across asset classes and regions. Our current allocations are between 5% and 7% of each fund, as without the benefit of a much larger return, taking on high yield’s extra risk doesn’t always make sense.  

There’s been significant change in interest rate and inflation predictions since the beginning of the Iran conflict. This can harm bonds in the short term and results in the expected returns of bonds fluctuating. The IA £ corporate bond sector has a negative return so far this year of 0.8% while the IA £ high yield bond sector has fallen 0.5%, as of 24 March. 

In practice, high-yield debt can be used as a diversifier, particularly in – or near – retirement, and generally presents less risk than equities. However, it’s better suited as a slice of a portfolio than completely shifting assets to high-yield debt. While the past few years have been a good time to be invested in the sector, there’s no guarantee that will continue. Investors should keep their eyes peeled for factors, both external and internal to the high yield market, that could impact returns.