Fixed Income
What Is Fixed Income?
Fixed income refers to investments that provide regular interest payments to investors and return the original principal amount at maturity. These investments are commonly used to generate steady income and reduce portfolio volatility.
Examples of fixed-income investments include government bonds, corporate bonds, treasury securities, and certificates of deposit.
Why It Matters
Fixed-income investments can help provide predictable income and stability within an investment portfolio. They are often used by investors seeking lower-risk investments or by retirees who want consistent income.
Including fixed-income assets in a diversified portfolio can help balance the risks associated with more volatile investments such as stocks.
How Fixed Income Works
When an investor purchases a fixed-income investment, they are essentially lending money to a government, corporation, or financial institution.
In return, the investor receives:
- periodic interest payments
- repayment of the principal at maturity
The interest rate, maturity date, and payment schedule are usually defined when the investment is issued.
Fixed Income vs Equity Investments
- Fixed-income investments provide regular interest payments.
- Equity investments such as stocks represent ownership in a company and may provide dividends and capital appreciation.
FAQs About Fixed Income
Are fixed-income investments risk-free?
No. Fixed-income investments may still carry risks such as interest rate risk or credit risk.
Why do retirees use fixed-income investments?
They can provide stable income and lower volatility.
Do fixed-income investments always pay fixed interest?
Some fixed-income securities have variable rates.
Related Terms
