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Fixed Income Investing Ideas


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Types of Fixed Income Investing

Fixed Income Investing IdeasAre you looking for fixed income investing ideas?  There are some good options for fixed income investing.  While fixed income investment options are not very alluring at the moment, due to the extremely low interest income environment, there are times when fixed income investing is a necessity, especially when money is needed for a specific purpose in the not too distant future.

Fixed income investing includes a number of investment options from Certificates of Deposit (CDs) to United States treasury notes to investment-grade corporate bonds, among others.  What they all have in common is that they pay a fixed rate of annual interest yield for a fixed amount of time and have either an extremely low chance of default or are insured against loss of principal.  This makes them suitable for savers that need to park their money in a safe place for a future need.

When Fixed Income Investing Makes Sense

Fixed Income Investing

When does fixed income investing make sense?  It makes sense when money is needed for a relatively short-term expense, generally within the next five years, and for longer-term investments that one wants to ensure are safely invested and not subject to market forces that could decrease the value of the principal invested.  If the money is needed for a future expense, such as a down payment on a new car or paying for college in a few years, then a wide variety of fixed income investments are suitable.

The amount of interest paid on the fixed income investment is directly correlated with the length of the investment.  For example, a five-year Certificate of Deposit will pay a noticeably higher annual interest yield than a one-year Certificate of Deposit.  For this reason, it is important to understand when you will need the money you intend to invest.  If you plan on buying a new in a year, then a short-term one-year Certificate of Deposit would make sense, so the money is available when you need it.  If your child is going to college in five years, then a five-year Certificate of Deposit makes sense to earn the highest rate of fixed income possible via the Certificate of Deposit route.

To earn the highest amount of interest from longer-term fixed income investments, treasury notes and investment-grade corporate bonds with a maturity of five years or less may be a better choice to maximize your investment profits.  Both pay higher annual interest than Certificates of Deposit, with investment-grade corporate bonds earning the highest annual interest.

Generally, fixed income investing makes sense when you want to invest money, but cannot afford to take any risk.  While the money that needs to be protected from risk could also be placed into an insured interest bearing savings account, these accounts pay such low annual rates of interest yield, currently below one-half of one percent, that it does not make financial sense for money that is not needed immediately, as fixed income investments offer substantially higher rates of interest yield than savings accounts.

Some Fixed Income Investing Ideas

Fixed Income Investing Yields

The following are some fixed income investing ideas.  This not the full-range of fixed income investment products available, it is just a sampling of some of the more conservative ones available.

Certificates of Deposit are one of the most common and accessible fixed income investments available.  Many banks and financial institutions offer Certificates of Deposit with a wide range of maturity dates, generally from three months to five years.  The longer the maturity date, the higher the annual rate of interest yield.  For example, a three-month Certificates of Deposit currently pays approximately 0.30%, while a five-year Certificates of Deposit currently pays approximately 1.60%.  You do not even need to visit a bank or financial institution to purchase a Certificates of Deposit, as many offer secure online methods of purchasing their Certificates of Deposit products.

United States Treasury Notes are also fairly easy for an individual investor to purchase.  In fact, the United States government set up a website called Treasury Direct that anyone can use to purchase a wide variety of United States treasury notes.  Notes are available that mature in as little as two years.  With other short-term notes that mature in two years and five years also available for fixed income investing.  For longer range fixed income investors, treasury notes that mature in ten years and treasury bonds that mature in thirty years are available.

Investment-Grade Corporate Bonds are another option forfixed income investorsthat are looking to earn a safe fixed rate of return on their savings.  Investment-grade corporate bonds are bonds that are rated at the highest levels by major credit rating agencies.  The appeal of buying investment-grade corporate bonds is that they tend to pay a higher rate of annual interest yield than Certificates of Deposit or United States treasury notes.  However, they are slightly riskier to buy than Certificates of Deposit or United States treasury notes, since there is an extremely small chance they could default.  However, with the proper vetting of the companies issuing the bonds the likelihood of default can be reduced to such a low probability that it presents little in the way of investment risk.  As an alternative, a fund that invests in investment-grade corporate bonds could be purchased to further reduce the risk of an individual bond default.  Just make sure you avoid any corporate bonds that are rates as “junk bonds”, since they have a high risk of defaulting and are not suitable for fixed income investing.

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