Cruise ControlIf you're looking for gains plus protection, consider the flexibility of convertible bonds.

Summertime, and the investing is . . . well, anything but easy.After months of record-breaking highs, the stock market's"irrational exuberance" has made many investors morecautious. And yet, who doesn't long for those starlit nightsaround the campfire, spinning tales of profits made and capitalgains taken? Well, if you want to have your gains and protect yourinvestment, too, you can find a measure of both credit safety andpotential appreciation in convertible bonds.

Convertible bonds are hybrid securities that sharecharacteristics of both stocks and bonds. As the name implies,these securities can be exchanged for a set number of shares of theunderlying common stock, and their price tracks that of the stockon the way up. But as fixed-income securities, they pay a fixedinterest rate like a regular bond. These interest payments cushionthe bond's prices when the stock declines, so convertiblesecurities rarely fall as far or as fast as their common stockcousins. For some investors, convertibles provide the best of bothworlds.