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FAQs

What is the best fixed income investment? ›

Potential risks associated with fixed-income investing

Bonds are indeed less volatile, and some instruments, like CDs and annuities, offer a guaranteed return that's not affected by market fluctuations. But bonds do carry risk, chiefly surrounding credit quality and interest rates.

Fixed income broadly refers to those types of investment security that pay investors fixed interest or dividend payments until their maturity date. At maturity, investors are repaid the principal amount they had invested.

Fixed-income securities usually have low price volatility risk. Some fixed-income securities are guaranteed by the government providing a safer return for investors. Cons: Fixed-income securities have credit risk, so the issuer could possibly default on making the interest payments or paying back the principal.

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.

Reducing your cost of living can be one of the most strategic money moves when you're on a fixed income. This might look like staying in your area but moving to a home with a lower cost to maintain, like trading in the big house with high utility bills or property taxes for a more affordable, lower-maintenance home.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors.

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.

This decline is not surprising, given that most people live on a fixed income during retirement (usually a combination of social security and investment distributions). Retirees should therefore make sure they have enough resources to last through their golden years.

Why do retired people say they are on a fixed income? ›

Your Social Security payments may go up (or down) for cost of living adjustments, but once you start Social Security, your monthly payments are fixed. Pensions are like Social Security and are also considered to be fixed income.

Fixed-Income securities are debt instruments that pay a fixed amount of interest, in the form of coupon payments, to investors. The interest payments are commonly distributed semiannually, and the principal is returned to the investor at maturity.

Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

Although it seems that fixed income investments are risk-free and 100% safe, nothing is further from the truth. Fixed income investments run credit risk, market risk, movement penalties, hidden fees, transparency in results, among many others.

“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.”

Here are 3 reasons why now's a good time to evaluate the role of high-quality fixed income exposure in your portfolio. Bonds are providing healthier yields than we've seen since before the 2008 global financial crisis. Higher current yields support a much-improved outlook for bond returns going forward.

In current market circ*mstances, with higher bond yields, fixed income investments have become an attractive asset class again from a risk-return perspective. Apart from the attractive yield, bonds also offer resilience for adverse market developments in risk assets like equities.