Convertible Bonds?

[er9027]

Opinions on these please? Seems like a solid investment. Need
quite a bit of capital to get started but risk is lower than Mutual Funds from
what I can tell.

[l2ridehd]

As with anything, it depends. Convertible bonds are usually issued by companies with a low credit rating and high growth potential. So bond payback risk is inherent.

To compensate for having additional value through the option to convert the bond to stock, a convertible bond typically has an interest rate lower than that of similar, non-convertible debt. The investor receives the potential upside of conversion into equity while protecting downside with cash flow from the interest payments and the return of principal upon maturity.

You also have the risk of stock value dilution. If the stock price goes up and all the bond holders decide to convert, then stock price will drop.

So what you need to find is bonds from a company with at least an OK credit rating, willing to provide an acceptable interest rate, with growth potential, that has not issued so many convertible bonds that you have a stock price dilution exposure.

Owning these should be reserved for the higher risk portion of your investment portfolio.

[Certified Financial Group]

I concur with the above information and would add that individual bond and stock selection is not recommended for most investors. An investor, in order to be successful in the long run, needs three things: time, temperament and training. Most have one, some have two, few have three.

[er9027]

thank you both! Our major investments now are in Mutual Funds from 401k rollovers and I thought convertible bonds would be similar with about the same risk with slightly better returns. I was told that in order to get into CB's you need a higher investment. Not for the average investor. Not so evidently ? thanks again