Fixed-income investments (2024)

FAQs

What is the best fixed-income investment? ›

Fixed-income investing is a lower-risk investment strategy that focuses on generating consistent payments from investments such as bonds, money-market funds and certificates of deposit, or CDs.

Treasury bonds and bills, municipal bonds, corporate bonds, and certificates of deposit (CDs) are all examples of fixed-income products.

“Fixed income investments can provide a degree of stability, especially for investors who are holding such investments for their income-generating ability and not actively trading based on price changes.”

Fixed income risks occur due to the unpredictability of the market. Risks can impact the market value and cash flows from the security. The major risks include interest rate, reinvestment, call/prepayment, credit, inflation, liquidity, exchange rate, volatility, political, event, and sector risks.

Disadvantages. Fixed-income securities commonly have low returns and slow capital appreciation or price increases. This is the trade-off for lower risk. Their prices tend to decrease slower as well.

Investors who hold fixed income generate a return even when the stock market is down. Fixed-income investing is also a way to earn passive income: When investors own a fixed-income instrument, such as a bond or CD, they collect the income without having to manage any other considerations regarding the holding.

Fixed-income securities typically provide lower returns than stocks and other types of investments, making it difficult to grow wealth over time. Additionally, fixed-income investments are subject to interest rate risk.

Living on a fixed income generally applies to older adults who are no longer working and collecting a regular paycheck. Instead, they depend mostly or entirely on fixed payments from sources such as Social Security, pensions, and/or retirement savings.

Are fixed income and bonds the same? ›

Bonds – also known as fixed income – are essentially an IOU. Governments and companies borrow money when they issue bonds, then promise to repay it at the end of the bond's life.

Annuities and bonds are popular ways for investors to generate an income stream. Both are considered members of the "fixed income" asset class.

Treasuries are generally considered"risk-free" since the federal government guarantees them and has never (yet) defaulted. These government bonds are often best for investors seeking a safe haven for their money, particularly during volatile market periods. They offer high liquidity due to an active secondary market.

Interest rates tend to begin to decline three months ahead of recessions and reach a cycle low about five months into recessions. During economic downturns, fixed income has been shown to provide diversification benefits and reduce the volatility of portfolios that include risk assets such as equities.

What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

The safest place to put your retirement funds is in low-risk investments and savings options with guaranteed growth. Low-risk investments and savings options include fixed annuities, savings accounts, CDs, treasury securities, and money market accounts. Of these, fixed annuities usually provide the best interest rates.