Fixed Income Investment - Amsterdam Institute of Finance (2024)

FAQs

What should I look for in fixed income investments? ›

Maturity timeframe

Traditionally, longer-term bonds produce higher yields but also have higher interest rate risk—the risk that the value of a bond will fall if interest rates rise. Thus, your time frame may be one factor in determining the amount of interest rate risk you're willing to take on.

In return for buying the bonds, the investor – or bondholder– receives periodic interest payments known as coupons. The coupon payments, which may be made quarterly, twice yearly or annually, are expected to provide regular, predictable income to the investor..

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.

Fixed income derivatives include interest rate derivatives and credit derivatives. Often inflation derivatives are also included into this definition. There is a wide range of fixed income derivative products: options, swaps, futures contracts as well as forward contracts.

Higher returns usually involve higher risk. However, CDs, money market funds, government bonds, bond mutual funds and ETFs, and deferred fixed annuities, are all fixed-income investments that are considered less risky than stocks. In early 2024, U.S. Treasuries and some CDs offered yields in the 5% range.

Fixed-income investments, such as government and corporate bonds, can provide a steady, predictable source of income, often with lower risk than other investments. Along with stocks and stock mutual funds, fixed-income investments make up the backbone of a well-diversified investment portfolio.

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.

Should I only buy bonds when interest rates are high? There are advantages to purchasing bonds after interest rates have risen. Along with generating a larger income stream, such bonds may be subject to less interest rate risk, as there may be a reduced chance of rates moving significantly higher from current levels.

After bonds are initially issued, their worth will fluctuate like a stock's would. If you're holding the bond to maturity, the fluctuations won't matter—your interest payments and face value won't change.

Ramsey warned that you shouldn't invest in CDs because average rates won't keep pace with inflation and because they aren't a good place to grow your money. He suggests investing in mutual funds instead.

Which bonds give a monthly income? ›

Guaranteed Income Bonds (British Savings Bonds) Earn guaranteed monthly income for a fixed term. Our Guaranteed Income Bonds are one of the British Savings Bonds announced by the Chancellor in the Spring Budget 2024.

Fixed income investing can be a particularly good option if you're living on an actual fixed income and looking for ways to maximize your savings. And if you're worried about the potential wild ups and downs of the stock market, fixed income investing can help you sleep a bit better at night.

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.

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.

Examples of fixed-income securities include bonds, treasury bills, Guaranteed Investment Certificates (GICs), mortgages or preferred shares, all of which represent a loan by the investor to the issuer.

Perform granular analysis by decomposing a bond's total return into core elements including price, coupon, paydown, and currency, with the option to further decompose price. Measure the excess return of portfolio securities over equivalent government bonds.

Many financial advisors recommend a 60/40 asset allocation between stocks and fixed income to take advantage of growth while keeping up your defenses.

The process for picking a fixed-income ETF is similar to picking any other asset class. First, you'll need to determine your targeted exposure—the type of bonds you're interested in. Next, you'll need to consider the credit ratings and interest-rate risk of the ETF's underlying securities.