What Are Fixed Income Investments?

Fixed income investments, as the name implies, are securities or investments that will yield a specific amount of income for a specific period of time. On the scale of risk vs. reward they tend towards the lower end of both risk and reward. They are investment vehicles best used for, as you might imagine, producing regular and steady income rather than growing your wealth, though with enough time they can do both albeit very slowly. Fixed income investing is a great way for retirees to ensure a rather steady level income in order to keep up their lifestyle while exposing them to minimal risk. While a fixed income investment is one of the least risky investments, and are often government backed, they are not without risk entirely, which is true of just about any investment.

Things such as inflation, currency prices, and even natural disasters and other world events can reduce the amount of objective income these investments produce.

Types of Fixed Income Investments

One of the most common types of fixed income investments is a bond. Bonds cover a range of products from U.S. Treasury Bonds that are considered the safest, to Corporate Bonds which are riskier but also have more reward. According to Wikipedia:

is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest (the coupon) and/or to repay the principal at a later date, termed maturity.

Essentially, the coupon, or interest, is what the holder would use as income.  This type of investment preserves the principal until maturity at which time the holder may choose to reinvest that principal in another bond, or any other investment of his choosing.  The amount of interest and length of maturity are determined at the time of issue and remains the same throughout the determined time frame.

Bond Funds (Either ETF or Mutual Funds) are a way to diversify your risk exposure in the bond market while attempting greater gains or income than you would from investing in just one bond.  Some investors might attempt to invest in multiple bonds themselves, mixing varying levels or risk and return on their own, but the fees for maintaining such a portfolio often make their efforts not worth the expense.  This is where Bond Funds come in, as they do the shuffling and trading for you, and you simply invest in the fund as a whole and let them do the work and take on the expenses.  Of course , with Bond Mutual Funds, as with any mutual fund, you want to be aware of the fees associated with the fund.

A CD, or Certificate of Deposit, is another form of fixed income investment. These are issued by backs, and are insured by the FDIC and are a nearly risk-free investment. Your money is held by the issuer for a fixed period of time, and at the end of that time (between 3 months a 5 years) your principal is returned along with any earned interest. This is different from placing your money in a savings account because CDs tend to have more favorable interest rates. Generally the more money you deposit, the better your interest rate will be. Due to the risk-free or extremely low risk of this investment vehicle, as you might imagine, the return is rather low as well. Generally CDs are for very risk averse investors, but can be incorporated into any portfolio.

Determining the best fixed income investments for you will come down to assessing your current portfolio, assets, and the lifestyle you wish to live off of the income produced from these investments. The fixed income investments mentioned above aren't the only type available, they are only the most common. Speak with a financial advisor to determine what the best course of action for making your money produce income for you.