In his book “Telecosm,” author George Gilder called this financial titan “the key source of organizational changes that have impelled economic growth over the last 20 years.”

He earned more than a billion dollars over a four-year period as an employee of Drexel Burnham Lambert in the late 1980s — at the time, the record for employee compensation in the United States.#-ad_banner-#

His success was attributed to an incredible trading record of only four losing months out of 17 years — as well as the rise in public awareness of a financial product popularly known as junk bonds.

Although like most public figures he is not without his critics, over the years this financier has also been praised by Fortune magazine and other media outlets for his decades-long work as a philanthropist and innovator in medical research.

If you haven’t already guessed it, I am talking about Michael Milken.

Milken is credited with helping expand the market for junk bonds, which have transformed the way companies raise capital.

Junk bonds are high-yielding bonds that are below investment grade, which means they have a higher risk of default than traditional investment-grade bonds. Therefore, junk bonds need to pay out a higher yield to entice investors. And in today’s low interest rate environment, these higher-yielding bonds are experiencing a resurgence in popularity.

While it is true that junk bond yields have been falling (average yield junk bond yields are in the 5-6% range), the income they offer still beats the paltry 2% yield you’ll get from a 10-year Treasury note or the average S&P 500 stock.

Simply put, today’s low-rate environment has increased demand for these higher-yielding investments, even if they are perceived as “riskier”. But they’re not as risky as they might seem. Default rates are projected to fall to only 2.7% this year, the lowest level since February 2012, which means that the risk of investors getting burned on the average junk bond is fairly remote.

Even better, with the advent of exchange-traded funds (ETFs), investors are able to lower their risk even further by owning bond funds that hold a basket of bonds.

And with companies issuing speculative-grade debt at record paces, demand for bond ETFs has been surging.

The most popular junk-bond ETFs include the iShares iBoxx High Yield Corporate Bond (HYG) and SPDR Barclays High Yield Bond (JNK). These two ETFs have a total of nearly $30 billion in combined assets under management. Over the past 52 weeks, JNK has returned 12.5% and HYG has returned 12.1%.

Aside from their safety, these two ETFs are attractive options because of the income they offer. Both yield around 6.5%. 

Risks to Consider: Standard & Poor’s is predicting an increase in default rates over the next 10 months. In addition, the spread between junk bonds and Treasurys have declined sharply this year. This could be forecasting continued yield declines. In fact, junk-bond yields have dropped 1,300 basis points since 2008. Not to mention that short interest in the major junk-bond ETFs hit an all-time high in March.

Make no mistake, despite their popularity in this yield-hungry environment, junk bonds and their corresponding ETFs remain a high-risk investment suitable only for investors who understand the risk involved.

Action to Take –> The yield offered by ETFs like JNK and HYG are too juicy to ignore, but investors should be careful. Remember to use stop-loss orders and to only use capital from your portfolio set aside for risk for this type of investment.

P.S. — An eccentric Texas woman who dodged the 2008 financial collapse says the market is ripe for a pullback. To learn how she’s protecting her portfolio today, click here.