They look like bonds, and they often act like bonds, but they are not bonds. They are financial instruments that compete with bonds and sometimes complement bond portfolios. Investors might become interested in these alternatives when they are seeking more cash flow, a different kind of cash flow, or a different type of security to satisfy their financial needs. The spectrum of risks may be different from those associated with bonds, although unfortunately that may be overlooked in the search for additional income.
And when investors are interested, financial firms and brokerage houses are quick to rush in with fancy-sounding products geared to those interests. Two of the many offerings go by the names of principal-protected ...