Posted on 26 September 2012. Tags: what is fixed income
You may have heard investors recently asking, what is fixed income? Interest in these investments has increased over the past few years. The volatility of the stock market has sent many investors looking for more secure places to park their money. These investments have their own attractive qualities but many traders think of them merely as safe places to leave their money until the market becomes a more welcoming place.
Exactly what is fixed income? It works like this. When you buy fixed income securities, you are essentially making a loan to the entity that issues them. You agree to leave the money with the issuer for a fixed time period. During that time, which may be months or years, the issuer of the securities pays you a regular fee. The exact terms depend on the type of security and the identity of the issuer.
Governments, both federal and municipal, offer such bonds in order to fund their own operations. Corporations will sometimes manage the same sort of financial operation. In addition, preferred stocks that pay dividends are a type of fixed income.
What is fixed income good for? During booming markets, many investors avoid these opportunities because the returns on the bonds are not high and the nature of these deals locks up money for long periods. Investors are unable to withdraw the money and invest it in something more lucrative until the term expires.
However, during troubled economic periods such as the present, fixed income appears very appealing. Your money is safe and it produces a minimal income. Knowing what is fixed income is very useful when the market becomes unfriendly.
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