Fixed-Income

What Is Fixed-Income?

A fixed-income security is an investment vehicle that pays investors unchanging interest or dividend payments until its maturity date.

Upon maturity, investors are repaid the principal amount invested.

The purpose of fixed-income securities is to provide a steady income stream that is more stable than stocks.

Additionally, fixed-income investors are paid before common stockholders in the event that a company goes bankrupt.

Types of Fixed Income:

Some common types of fixed interest products are:

  • Government and corporate bonds
  • Fixed-income ETFs
  • Fixed-income Mutual funds
  • Treasury bonds and bills
  • Municipal bonds
  • Certificates of deposit (CDs)

For most investors, fixed-income investments are a common component of a well diversified portfolio.

Depending on their investment style, the percent of their portfolio dedicated to fixed-income securities may vary.

For example, a risk-averse investor may choose to invest 60% in fixed-income products and 40% in equities, while a more aggressive investor may have 20% in fixed-income securities and 80% in equities.

Utilizing Fixed-Income

One strategy for maximizing the return on investment from fixed-income securities is called laddering.

This is where an investor purchases a portfolio of bonds with staggered maturities.

For example, say an investor has $100,000 to invest in fixed-income securities.

Instead of buying $100,000 of one-year bonds, they may split the money into fifths and invest $20,000 each into one, two, three, four, and five-year securities.

When the one-year bonds mature, instead of buying more one-year securities, the investor will reinvest in five-year securities.

This way, the investor sees cash flow from their investments each year.

Fixed-Income FAQs

Fixed-income security is an investment vehicle that pays investors unchanging interest or dividend payments until its maturity date.
The purpose of fixed-income securities is to provide a steady income stream that is more stable than stocks.
One strategy for maximizing the return on investment from fixed-income securities is called laddering.
Most investors purchase fixed-income securities to diversify their investment portfolios.