How To Pick the Right Fixed Income Investments

When you have fixed income investments, you get to have a consistent flow of income. But although fixed income investments generate a relatively small amount of income, especially when your investments are small, they can reliably yield income on a regular basis and positively affect your portfolio. When you decide to pursue fixed income investments, you have to pick wisely where you want to invest your money. To help you, here are some tips.

  • Find out the different kinds of fixed income investments. The first thing you need to do is get familiar with the different kinds of fixed income investments. The most common are bonds, which are basically loans. Corporate bonds, for instance, involve a company (borrower) and an investor (lender). The investor will provide funds for the company, while the company will regularly pay the interest rate until the bond matures, in which case, the company has to pay the principal amount. Other types of bond include government bonds and high yield bonds. Corporate dividend is also another type of fixed income investment. In this investment setup, shareholders own the corporation and regularly receive dividends.
  • Decide how much you want to earn. As mentioned, the size of your income normally reflects the size of your investment. Therefore, if you want to yield relatively large income, you may have to invest larger capital. If your investment is quite small, you may have to wait for a considerable amount of time before you can actually produce a sizeable income. This is why it is important to first figure your income goals before you make an investment. And as you do so, try to be realistic.
  • Know the risks. Fixed income investments are generally thought to have low risks. This, however, does not reflect reality. In fact, like any other types of investments, fixed income investments have various risks. And some types of fixed income investments have more associated risks than other types. For example, high yield bonds, although generating more income, are relatively risky. Because it involves investing on companies that are either bankrupt or on the verge of bankruptcy, there is a great possibility of default, in which case, the investor loses parts or the entirety of his investment. When choosing a fixed income investment, therefore, study each of your options’ associated risks and decide how much you are willing to risk. Generally, though, the higher the income yield, the more risks there are.
  • Consult financial advisers. Although you can manage on your own, it is generally advisable to seek the services of financial advisers who will guide you through. They will help you choose the fixed income investments that go well with your financial goals and improve your portfolio.

Because fixed income investment involves a great deal of money and risks, you have to be very careful when choosing where to invest. Carefully assess your options, study possibilities, and seek wise advice. Don’t jump head on without adequate knowledge. If proper foresight and calculated risks are put in place, there is a great chance of investment success.


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