Written by - What Are Fixed Income Investments? Fixed income investments provide regular, fixed payments and the return of principal upon maturity. Examples include bonds, CDs, and annuities.
- Types of Fixed Income Investments:
- Bonds: Debt securities issued by governments, municipalities, or corporations that pay periodic interest.
- Certificates of Deposit (CDs): Time deposits offered by banks with fixed interest rates and maturity dates.
- Municipal Bonds: Bonds issued by local governments, offering tax advantages for investors in higher tax brackets.
- Benefits of Fixed Income Investments:
- Stability: They provide steady income, often with lower risk compared to equities, making them ideal for conservative investors.
- Lower Volatility: Fixed income investments tend to be less volatile than stocks, providing a more predictable income stream.
- Tax Advantages: Some bonds, like municipal bonds, may offer tax-free interest income, depending on your location and tax situation.
- Risks of Fixed Income Investments:
- Interest Rate Risk: Rising interest rates can decrease the value of existing bonds, especially long-term ones.
- Credit Risk: The issuer of a bond might default, resulting in lost income and principal.
- Inflation Risk: Fixed income returns may not keep pace with inflation, eroding purchasing power over time.
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