Written by How Fixed-Income Investments Can Diversify Your Portfolio
What Are Fixed-Income Investments?
- Definition: Fixed-income investments are those that provide regular interest payments and return the principal at maturity. Examples include bonds, certificates of deposit (CDs), and preferred stocks.
- Types of Fixed-Income Investments: Bonds, municipal bonds, treasury bonds, corporate bonds, and CDs.
- How They Work: These investments pay a fixed rate of interest over a specified period, offering stability and a predictable income stream.
Why Fixed-Income Investments Matter
- Stability: Fixed-income investments offer more stability than equities, especially during market downturns, providing steady income.
- Lower Volatility: These investments tend to have lower volatility than stocks, making them appealing to conservative investors seeking to preserve capital.
- Predictable Cash Flow: Investors who rely on income, such as retirees, benefit from the consistent cash flow that fixed-income investments provide.
How Fixed-Income Investments Diversify Your Portfolio
- Risk Reduction: By including bonds or other fixed-income assets in a portfolio, investors reduce overall portfolio risk and protect against the volatility of equities.
- Hedge Against Stock Market Downturns: Fixed-income investments generally perform well when stocks are underperforming, offering a hedge against market declines.
- Income Generation: Fixed-income investments provide income without requiring the investor to sell assets, which can be beneficial for long-term financial goals.
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