Fidelity Says This Investment Is Entering a ‘Golden Age’ — Should You Invest?

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A recent article by Fidelity highlights one surprising trend: the quiet comeback of convertible bonds. These hybrid investments are getting renewed attention from both institutional and individual investors alike. With more than $300 billion in outstanding convertible bonds, Fidelity says we may be entering a “golden age” for this asset class.

But before you rush to add them to your portfolio, it’s worth understanding what they are, why they’re suddenly popular and whether they actually make sense for the average investor.

What Are Convertible Bonds?

A convertible bond is part bond, part stock option. Convertible bonds pay regular interest payments (like a traditional bond), but also give you the option to convert your bond into a fixed number of shares of the issuing company’s stock.

In other words, you get a steady stream of income from interest payments, and the potential to profit if the company’s stock rises. If the stock performs well, you can convert your bonds into company stock, potentially at a discount to current stock prices. If it doesn’t perform well, you can choose to hold the bond and continue earning interest until maturity.

This “dual purpose” design is what makes convertible bonds unique. Fidelity describes them as “less sensitive than many other bonds to the risks that changes in interest rates may pose,” while still benefiting from rising equity prices when markets are strong. And with the potential for interest rates to continue dropping into 2026, these investments are becoming more attractive.

Pros of Convertible Bonds

• Equity Upside With Fixed Income Protection: Convertible bonds can capture some of a company’s stock gains without exposing you to full stock price volatility. If the stock price rises significantly, you can convert your bond into shares and benefit from that growth. If the stock drops, you still have the bond’s principal and interest payments as a safety net.
• Attractive in Volatile Markets: Fidelity notes that convertibles are well-positioned for the current environment of uncertain rates and uneven stock performance. They’re less rate-sensitive than traditional bonds, meaning they may hold up better if interest rates rise or fall.
• Growing Market: As of mid-2025, the convertible bond market is worth more than $306 billion, according to Fidelity. Many companies in tech and AI are issuing new convertibles to raise capital without giving up equity immediately. This gives investors more investing choices and opportunities for investing in companies without just owning the stock outright.
• Potential Access to High-Growth Companies: Some well-known growth names, including firms tied to AI and digital assets, have turned to convertible debt as a flexible funding tool. Fidelity points to MicroStrategy, which issued billions in convertibles to finance its Bitcoin purchases. Bitcoin hopefuls can buy these bonds with low risk, and participate in the upside of Bitcoin in the future, without the daily volatility.
• Diversification: Convertible bonds give investors access to both equity and debt investments in a single instrument, offering more diversification than an individual stock or bond investment. This helps spread risk in a portfolio, while providing steady income.

Cons of Convertible Bonds

• Complexity: Convertibles aren’t simple, and their performance depends on the issuing company’s creditworthiness, the direction of its stock and broader interest-rate trends. Understanding conversion ratios, call features and valuation can be tricky without professional help.
• Lower Yields Than Traditional Bonds: Because convertible bonds offer the potential for stock-like upside, companies can pay lower coupon rates. That means investors seeking pure income might find them less profitable than corporate or Treasury bonds.
• Equity-Like Risk: While convertibles cushion downside risk, they’re not immune to market declines. If the underlying stock falls sharply, the bond’s value can drop as well. You may end up with lower interest income with no meaningful upside.
• Limited Liquidity: The convertible bond market is smaller and less liquid than the broader bond or stock markets. Fidelity warns that “conditions can change quickly,” and trading activity can dry up during market stress. This means being stuck with an underperforming asset for a while.

Should You Invest in Convertible Bonds?

Convertible bonds can give some upside to investors and increase the diversification in your portfolio — but they’re not a perfect fit for everyone.

If you want fixed income with the potential for some equity growth, convertibles may be worth exploring. But convertible bonds still aren’t the most accessible investment for everyday investors. 

You’ll most likely need to access convertible bonds through professionally managed funds or ETFs, not individual bonds. And most brokers recommend working with a financial advisor that can help you invest in convertible bonds that balance risk and reward for your investing goals. Fidelity does offer ETFs, such as the Fidelity® Convertible Securities Fund (FCVSX), for easier investing, but it’s important to understand the risks and fees in these types of investments.

Bottom line: Convertibles may be worth considering in today’s investing environment, but you’ll want to fully understand the risks, costs and approach to convertible bonds before investing.

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