84 B eating the i ndexes reinvest the proceeds in something else that pays less income, unless you're willing to take a lot more risk. On the other hand, if the company that issued the 8% bond goes bankrupt, you'll end up with a lot less than the 100 you originally paid--conceivably as little as nothing, depending on how the bank- ruptcy proceeds. Even if the company struggles but survives, you'll have a lot of anxious moments, and you might find yourself selling the bond for considerably less than your cost. You might recognize this profile--limited upside, with poten- tially far greater downside if things go wrong--as virtually identical to the profile of selling a put. If a convertible bond's conversion feature becomes nearly worthless, which happens when the underlying stock drops far below its price when the bond was issued, you end up with effectively an ordinary bond, where the downside exceeds the upside. ...While with Convertibles, You Also Buy a Call But for a typical convertible bond, you have both aspects of optionality going on. You have the potential for gains far above the initial price if the stock does well. It's hard to believe now, given the company's fall from prominence, but AOL had a convertible bond that went from 100 to above 1,000. Plenty of convertibles go from 100 to 200 or 300. So if you buy a convertible around 100, your base expectation is to collect income and get your money back, with the knowledge that you have a shot to do much better. But you also need to be aware that at least getting your money back, although a reasonable expectation, is not an ironclad guarantee. Thus, you need to pick the right bonds. The best convertibles give you a fair chance at big gains with a high degree of confidence in getting your money back. As always, it's not just what you buy, but what you pay for it. There's nothing particularly safe about paying 120 for a convertible if you're far more likely to get 100 than 140 for it. As with options, convertibles are only good if you don't overpay for them. With convertibles above par, in particular, this means watching the dollars you spend on premium very closely.