Should You Own Convertible Bonds?

Should You Own Convertible Bonds?

I do not recommend that the average investor buy convertible bonds. Sometimes investors are attracted to this medium because they can borrow heavily and leverage their commitment. This simply increases your risk. Excessive leverage can be dangerous.

The theory goes that a convertible bond will almost rise as fast as the common stock rises, but the convertible bond will decline less during downturns. As it goes with most theories, the reality may be quite different.  There is also a liquidity question to consider, since many convertible bond markets may dry up in extremely difficult periods.



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