Advantages of Fixed Income Investments

The biggest advantages of fixed income investments is that they offer consistent payouts with low risk. They’re guaranteed, so as long as the issuer is reliable, they’re considered safe — U.S. Treasury bonds, for instance, are a fixed income investment with almost no chance of default. This is particularly important for people living off a fixed income who can’t afford to risk losing large amounts of money in other types of investments.

Fixed income funds can also be diversified, which can allow money to grow without the potential for massive losses. With the right approach, these investments can be the slow, steady options you need to create a solid long-term financial plan.

Types of Fixed Income Funds

Fixed income funds work in similar ways, but they carry different levels of risk. Of course, higher risk means a higher potential return. You should consider investments carefully; when in doubt, look for a financial advisory service that can help you make decisions that work for you.

Types of fixed income funds include:

• Certificates of Deposit- Also known as a CD, this financial tool is essentially a savings account with a fixed term and rate. CDs are typically federally insured and offer higher rates than standard saving accounts. Most CDs have early withdrawal penalties.
• U.S. Treasury Bonds- Also known as T-bonds, these are a government debt security option that offers regularly scheduled interest payouts with almost no risk. T-bonds are federally supported by taxes and have a maturity rate between 10 and 30 years.
• Government and Municipal Bonds- These work similarly to treasury bonds, but they’re provided by municipalities, often to pay for roads, infrastructure, or public works projects. Their interest is typically exempt from federal taxes and most state taxes, which makes them a great option for investors in higher tax brackets.
• Corporate Bonds- As their name implies, corporate bonds are issued by private firms. When you buy a corporate bond, you’re lending money to a company, who in turn is legally obligated to pay interest as well as the principle once the bond matures.
  
  These are riskier than government bonds, since private companies are more likely to default. However, if the company fails, corporate bond holders hold priority for payments over stock holders.
• Preferred Stock- Preferred stock is a share of a company, but with additional benefits. Typically, preferred stock owners rank higher in the capital structure, so they get payment priority over common stockholders. They’re also paid out first during liquidation. These are often considered less risky than common stock options, but more risky than purchasing bonds.
• Mortgage-Backed Securities (MBS)- MBS investments are similar to bonds, but are made up of multiple home loans purchased from banks that issued them. MBS get scheduled payouts. They’re the only securities tied to mortgages, so your investment is tied to the housing market.

Savvy investors might build a portfolio that invests in all of these — or only a few. Research is absolutely crucial, particularly if you’re trying to save money for retirement or if you’ve retired recently.

Fixed Income Investments Can Build Wealth

Generally speaking, fixed income funds are much safer than investing in the stock market. In fact, they’re some of the safest investments available.

However, no investment is completely risk free, and you’ll need to invest the right way in order to see a great return. It’s important to understand each option thoroughly, so read as many resources as you can find.

When building your investment portfolio, you want to be sure to have clear and defined goals for your money. Know your goals and the amount of risk you’re willing to take. Decide on an investment time frame. Make sure you’re setting reasonable goals — while investing more will mean more money eventually, you shouldn’t set up an investment schedule that will affect your quality of life.

Researching Fixed Income Funds

There’s many helpful online sources for learning about fixed income investments. For many people, the first step is to research each type of investment. After that, you’ll need to make an investment strategy and compare the payouts and risks of various fixed options.

If that seems overwhelming, don’t be afraid to find help. Look online for reputable advisors who manage fixed income investments, but don’t make a decision before checking out at least 3-4 companies. Remember, your financial future is important; any time you spend will pay off.