In today’s uncertain financial climate, it can be challenging to find reliable ways to grow your money. Fortunately, investing in the right securities can help you reach your long-term financial goals.
Fixed-income investments are an excellent way for younger investors and those with shorter time horizons to build wealth and diversify their portfolios. These investments can play a prominent role in your finances if you choose the right ones.
With that being said, not all fixed-income opportunities are created equal so you must know what they are before making an investment decision. Here are some of the best fixed-income alternatives available so you can add them to your portfolio if they meet your financial goals.
What are Fixed Income Investments?
Fixed-income investments are those that are expected to hold their value and produce a regular flow of cash throughout the investment term. This type of investment is a steady source of income that doesn’t fluctuate in value.
If inflation is low, these investments are a haven during times of economic uncertainty. Fixed-income investments are a great way to protect your money against inflation and reduce the risk of dramatic market fluctuations.
These investments are typically reliable and safe as long as interest rates remain stable. Some of the best fixed-income investments include government bonds, money market funds, and bonds issued by corporations.
How to choose the right fixed-income investment for your portfolio
That depends on your financial goals and the risks you’re comfortable with. Research different fixed-income securities to find the best option for your specific financial situation.
When building a portfolio, be sure to consider your time horizon, financial goals, and risk tolerance when choosing investments. You can also consider combining different types of investments to broaden your portfolio and increase diversification.
For example, you can add an equity bond to a balanced portfolio.
Popular Fixed Income Securities
U.S. Treasury Bills – These are short-term investment certificates issued by the U.S. Treasury. They mature at the end of the term and pay you a fixed interest rate. The interest rate on these investments is set by the current rate of interest. They are typically a good choice for investors who want to get a low-risk investment strategy with a fixed income. U.S.
Government Bonds – These are long-term investments that are issued by the U.S. government. Their value is backed by the full faith and credit of the U.S. government. These offer a high degree of security and stability while also producing a predictable monthly cash flow.
Corporate Bonds – These are long-term investments issued by corporations. They provide investors with a regular cash flow and are typically less risky than government bonds. You can find a wide range of investment options including investment-grade, high-yield, and junk bond categories.
Not So Popular Fixed Income Securities
Investment-Grade Credit Bond – These are typically rated AAA or AA by credit agencies. That means you are less likely to get back less than you put in. However, they also have a low liquidity rate that makes it difficult to sell them quickly.
High-Yield Credit Bond – These are typically rated CCC or D. They have a higher risk of default and are not as liquid as investment-grade credit bonds.
Junk Bond Credit Bond – These are typically rated BB or B. They have a higher risk of default and are not as liquid as investment-grade or high-yield credit bonds.
Bottom line
Fixed-income investments can be a great addition to your portfolio if they meet your financial goals, time horizon, and risk tolerance. Research different fixed-income securities and explore their potential returns to find the best option for your specific financial situation.
These investments typically offer a consistent source of income with low risk and little to no volatility. The best way to build a risk-free retirement income is to get a fixed-income investment like a U.S. government bond or bond issued by a federally-backed entity like a bank.
