Subscribe to Entrepreneur for $5

Cruise Control

If you're looking for gains plus protection, consider the flexibility of convertible bonds.

This story appears in the May 1997 issue of Entrepreneur. Subscribe »

Summertime, and the investing is . . . well, anything but easy. After months of record-breaking highs, the stock market's "irrational exuberance" has made many investors more cautious. And yet, who doesn't long for those starlit nights around the campfire, spinning tales of profits made and capital gains taken? Well, if you want to have your gains and protect your investment, too, you can find a measure of both credit safety and potential appreciation in convertible bonds.

Convertible bonds are hybrid securities that share characteristics of both stocks and bonds. As the name implies, these securities can be exchanged for a set number of shares of the underlying common stock, and their price tracks that of the stock on the way up. But as fixed-income securities, they pay a fixed interest rate like a regular bond. These interest payments cushion the bond's prices when the stock declines, so convertible securities rarely fall as far or as fast as their common stock cousins. For some investors, convertibles provide the best of both worlds.

Continue reading this article - and everything on Entrepreneur!

Become a member to get unlimited access and support the voices you want to hear more from. Get full access to Entrepreneur for just $5.

Get 3 months free with code zendesk

Presented by Zendesk

Champions of Customer Service zendesk

Entrepreneur Editors' Picks