Fixed income investments are by far the best option for retirees who are looking for stable returns and a way to increase their monthly earnings. With fixed income investments, you’ll be able to rely on a steady stream of income each month, and you won’t have to take away from your assets every time you’re short on cash. That’s why a lot of people, particularly those who are retired, consider fixed-income investments.
Fixed Income Explained
So what exactly are fixed income investments? A fixed-income fund is an investment that provides the investor with the same amount of payment in interest each month, promising the eventual return of the initial principal at maturity. Fixed income investments are very different from variable-income securities, where the monthly payments can change because they are based on some varying measure such as short-term interest rates.
Unlike variable-income investments, fixed income investments are ideal for those who are retired. When you have a fixed income investment, you will know how much the fund will pay out in advance, so essentially it offers a steady and reliable stream of income. And in most cases, fixed-income funds are made for retired men and women that need to cover their monthly expenses. With fixed-income funds, you get a set monthly payment, but you can choose to set payments to each week, quarter, or annually, as those options are also available.
Usually, investors use more than one fixed-income fund to avoid risks, diversify their portfolio, and be able to come up with a steady flow of cash. It is also possible to leave leave some of your money in a variable return fund but also get a stable income. Besides that, there’s the option to reinvest some of your returns automatically to increase your payments down the line.
Types of Fixed Income Funds
- Municipal Bonds [1]:Local municipalities can issue bonds in the United States in the same way that the federal government can. Municipal Bonds are low-risk investments and they are tax exempt.
- Government and Agency Bonds [2]: Government bonds that you can buy from wealthy countries are usually low risk, but be careful if you are looking into buying bonds from markets that are in developing countries, as these are not always the most stable.
- Treasury Bonds [3]: ]: The treasury bonds sold by the U.S. Government are both low risk and low reward, which means that they may be stable, but you won’t necessarily be getting monthly returns that are as high as you might prefer.
- Corporate Bonds [4]: When companies want to raise funds, they often issue corporate bonds that have high returns. However, corporate bonds can also be high risk, so be careful and be conservative if you decide to go for this option.
- Mortgage-backed securities [5]: ]: If you are looking for a significant return on your fixed income investment, look for banks that are selling mortgages on the open market.
- Certificates of Deposit (CD) [6]: This is the most easily accessible fixed-income investment you can make. It is very low risk, but, like treasury bonds, it is an option that will give low returns as well.
- Preferred Stock [7]: To raise funds, some corporations will issue preferred stock notes that you can later convert into common stock once a specific period of time has passed.
Why Fixed Income Investments Are a Great Choice
Anyone who is close to retirement or who is already retired should consider fixed-income investments. The main benefits include:
- A Stable Fixed Income: A stable fixed-income stops you from withdrawing from your capital base funds when you are short on money.
- Tax Exemptions: Some fixed-income investments are tax-exempt so you don’t have to worry about an increase in taxes
- Low Risk: Many fixed-income funds, such as CDs or government bonds, are extremely low risk.
- Protection from Market Instability: Diversifying your portfolio with fixed-income investments gives you a degree of protection from market crashes
How to Discover the Top Fixed Income Funds
Expanding your portfolio with fixed-income investments offers incredible benefits for everyone, but especially those who are retired or nearing retirement. However, you should know that those who dive in to investment without adequate consideration can lose a lot of money, while those who make informed decisions are likely to enjoy lower risks with higher rewards.
With that said, it is of utmost importance that you find a trustworthy financial advisor to get you started and help you plan out your financial future. You can search online quickly and easily for a fixed income fund that will work for you, but before you make any decisions, be absolutely sure sure that you have compared at least a few options and have consulted with your advisor.
[1]https://www.thebalance.com/municipal-bonds-what-are-they-and-how-do-they-work-3305607
[2]https://www.investopedia.com/terms/a/agencybonds.asp
[3]https://www.investopedia.com/terms/t/treasurybond.asp
[4]https://www.investopedia.com/terms/c/corporatebond.asp
[5]https://www.thebalance.com/mortgage-backed-securities-types-how-they-work-3305947
[6]https://www.investopedia.com/terms/c/certificateofdeposit.asp
[7]https://www.investopedia.com/terms/p/preferredstock.asp