| Bonds are safer than stocks. Much safer. Stocks will rise and fall depending on the underlying company's fundamentals, the overall market, the associated sector's performance and other factors. When you want to sell the stock, if it's higher than what you bought it for, you make money. If it's lower, you lose money. (And if the company struggles, you could lose a lot of money.) The price of a bond also fluctuates, but it really doesn't matter. Because when you buy a bond, you typically plan to hold it until maturity. You can always sell it for a profit if you get the opportunity, of course. But regardless of what happens with the bond's price, at maturity, the bond will pay you par value, which is usually $1,000. So if you buy a bond for $1,000, you will get your $1,000 back at maturity - and you will have collected interest payments while you held the bond. If you buy the bond for $900, you will receive $1,000 at maturity. If you pay $1,100, you'll receive $1,000. This is why I recommend that you buy most bonds at $1,000 or lower, though there are exceptions. The company's earnings could stink and the CEO could be a dirtbag, but as long as the company doesn't go bankrupt, you'll get your $1,000 back - and again, you will have collected interest along the way. Here's where convertible bonds get interesting. With these unique securities, you get all of the safety features of a bond that I just described... but at your request, the bond can be converted into a predetermined number of shares for a predetermined price. Let's say you paid $1,000 for a convertible bond that matures in December 2025, pays 4% annual interest and converts to 20 shares of stock for $50 a share. And let's say that the convertible bond's associated stock is trading for $40 today. With shares at $40, you obviously wouldn't convert the bond to stock because you could buy the stock on the open market for less than the $50 conversion price. So instead, you'd hold the bond and collect your 4% annual interest. Now let's say that when March 2024 comes around, the stock is trading at $100. You can convert your bond into 20 shares of stock. If you do, you would own $2,000 worth of stock ($100 per share times 20 shares), for which you paid just $1,000. And with convertible bonds, the bond price typically moves in tandem with the share price. So even if you don't convert the bond into stock, the bond price will be significantly higher because of the $100 stock price, so you could always sell the bond for a profit without converting. On the other hand, if the stock never rises above $50, you can collect your 4% until maturity and get your $1,000 back. YOUR ACTION PLAN Convertible bonds give you all the upside of stocks and all the safety of bonds. They are the perfect investment for uncertain times like these. And right now, I'm showing investors a simple hack to invest in an alternative income strategy that can generate gains as high as 1,984% in three years... while actually CUTTING your risk. To learn more about the convertible bond I'm most excited about right now, click here. Good investing, Marc | 
Post a Comment
Post a Comment