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From Baltimore – I’m a fan of debunking prominent market myths. And there’s one in particular that comes to mind during the recent market turmoil.
It’s the notion that an investor MUST take on higher levels of risk in order to achieve higher levels of reward in the market. For many, this is an unquestioned truism.
But how true is it?
Let’s consider the two most commonly looked at asset classes: stocks and bonds.
The stock market has been among the greatest wealth creation mechanisms in human history, especially when compared with other asset classes. Let’s take a look…
And yet, as markets like the current one clearly show, stocks can also demonstrate a great deal of volatility and sensitivity to global panic and uncertainty.
In contrast, consider the bond market.
Bonds are generally looked at as a kind of safe-haven investment. They are ideal for those who cannot – or choose not to – stomach volatility. And they provide steady income on top of a legally protected principal to be returned back at a future date.
And while our historically low rate environment has hurt the attractiveness of bonds over the past decade, they are still an important part of a well-diversified portfolio.
The two asset classes reflect a classic trade-off…
Stocks offer higher returns at the cost of higher volatility, while bonds offer lower yet more stable returns – and consistent income – with very little volatility.
Risk and reward seem so clearly to move in tandem.
But what if it were possible to reap the benefits of both stocks and bonds without the downside of either?
In today’s Market Wake-Up Call, Chief Income Strategist Marc Lichtenfeld and Chief Investment Strategist Alexander Green discuss an investment that has flipped conventional investing wisdom on its head: convertible bonds.
“For people who are looking for more upside potential with less downside risk,” says Alex, “convertible bonds are a great place to be.”
Marc agrees. “I think that it’s a perfect investment for the situation we’re in right now, because you do have the safety of bonds… but you do have the upside potential if the stock goes higher.”
These unique hybrid investments can offer ordinary investors the best of both worlds by delivering stocklike returns through a safe principal-protected investment.
And as you can see in the chart above, they’ve also managed to outperform global stocks for more than two decades now.
It goes without saying that every investor, now more than ever, would do well to learn more about these little-known… low-risk… and high-powered investments.
If you’d like to learn more about convertible bonds – and which ones Marc is looking at right now – just click here.
Invest wisely,
Anthony