Fixed Income Investing | Advisor World

FIXED INCOME INVESTING An investment in knowledge pays the best interest.

Fixed Income Investing – What You Need To Know The reason why you might want to opt for fixed income investing is that you don’t want the volatility that comes with investing in stocks. Stocks are quite volatile, meaning that the value of stocks can rise and fall greatly over the course of several days or even weeks or months. Fixed income investments, on the other hand, tend to be less volatile than stocks and thus can offer more predictable returns over time as long as you know what to look out for and what risks might come up from time to time.

Fixed Income Investing Simply put, fixed income investing refers to the investment of money that is guaranteed to give you a certain rate of return. For example, if you have taken out a fixed deposit from your bank for five years and decide to invest it in fixed income instruments like government bonds or corporate bonds, then you can say that you are investing in fixed income. Fixed income investments are used by many investors as a means of wealth creation through steady interest on their deposits.

Fixed-Income Risk There are two primary risks in fixed income investing: interest rate risk and credit risk.

Interest rate risk is calculated based on changes in interest rates. If you hold a bond for 10 years, but then interest rates increase significantly during that time, you could see a significant decline in value or even lose your investment entirely. Credit risk refers to the possibility that companies will go bankrupt and fail to pay back their investors.

Why Invest In Fixed Income?

There are many reasons to invest in fixed income, including protection from market downturns, high current income and dividend payments, tax advantages, and growth of capital. However, it’s important to understand that even though there are many benefits associated with investing in fixed income products, these investment strategies can also carry risks if not carefully selected. Fixed income investments differ from equities in that their return of principal is guaranteed at maturity. Most bonds have a set maturity date ranging from three months to 30 years or more.

Corporate Bond Yields Corporate bonds can offer higher yields than government bonds but are riskier.

They expose investors to default risk (i.e., a chance that an issuer will be unable to make interest or principal payments) and credit risk (i.e., a chance that an issuer will not make payments because of poor management or other factors). Corporate bond prices increase when interest rates fall and they decrease when rates rise.

Market Sentiment And Fixed Income Investing The first rule of fixed income investing is to buy when nobody else wants your investment and to sell when everybody else is buying. If market sentiment is negative, investors will be looking for safe-havens. Bonds are one such place. When markets are down, investors look for stability and safe returns—which means they’ll look toward bonds as a safer option than stocks or other debt-issuing securities.

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