Convertible bonds represent a predetermined number of shares in the company issuing the bond. When first purchased, they act like a regular corporate bond but yield a lower interest rate. Convertible bonds have no conversion when a company’s stock performs poorly, leaving investors stuck with a sub-par bond return. Reverse convertible bonds can be converted into cash, debt or equity. If sold before their maturity date, they yield a higher gain.
Convertible bond pricing affects the convertible bond listing—the conversion ratio determines the number of shares each bond can convert. The more movement your convertible bond has, the more volatile it becomes. Convertible bond analysis follows the underlying price of the company’s stock. You can view convertible bond quotes online and in financial journals.
1. Find convertible bond information on any financial investing website. Fidelity has an inventory of over 10,000 securities.
2. A convertible bond fund offers less risk than other investment options. Convertible bond funds are a long-term, interest-bearing investment.
3. States and local governments offer fixed-income convertible bonds. They come in the form of municipal bonds and help finance special community projects.
Action Steps
The best contacts and resources to help you get it done
Find a convertible bond that's right for you
Convertible bond trading is a hedging strategy. Convertible bond purchasing protects a buyer's investment. Hedge funds may be viewed as high-risk investments, but convertible bonds have low risk.
I recommend: Bondsearch123.com focuses on helping investors find the right bond for their investment needs. You can sign up for electronic newsletters on a variety of investment websites.
Dailywealth.com is an electronic newsletter with investment suggestions and portfolio mapping.
Evaluate convertible bonds
The relationship between the conversion value and the investment value is how you evaluate the risk of a convertible bond. The company's stock price and its effect on the convertible bond value are important to find out before you invest in the bond. When the stock price of a company rises, so does the value of the convertible bond, and the opposite is also true: a fall in price is a fall in the convertible bond's value. When the common stock of a company falls in value, the convertible bond keeps its market value.
I recommend: Calamos Financial Services is an investment firm that specializes in building wealth through managed-risk investing. Managed-risk investing creates a balanced portfolio. Convertible bonds are a high-yield, low- to medium-risk investment opportunity available through
Ameriprise Financial.
Learn the language of investing and how to update your portfolio with a convertible bond calculator
Many good investment websites assume you know what you want and how to get it. The problem is that many online investors are novices and don't know or understand the vocabulary of investing. Once you learn the terms, you need to learn how to calculate the value of your investments. Building a diversified portfolio is a long-term commitment in your future.
I recommend: A convertible bond calculator, like the one on
Numa Web, can help you determine the par semiannual and annual values of your bond.
Investorwords.com explains the terms used in investing to those who are less experienced.
Tips & Tactics
Helpful advice for making the most of this Guide
- The rule of thumb is to invest 10% of your income. Solid portfolios have diversified investments so that you can minimize your risk and generate long-term gain.
- If an investment is so risky that you can't relax, then it's not the right investment for you. Convertible bond trading can provide investment opportunities that will let you sleep at night.
- Know the amount of commission and fees that your financial investor charges. Don't be afraid to negotiate; remember, it's your money. Most financial products are set up so that the financial advisor's commission and fees can be negotiable.
The official source of Convertible Bonds is the Convertible Bonds page at Business.com
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