During such high market volatility, getting steady returns on investments is tough. With the pandemic resulting in an unpredictable market, investors are finding it tough to get regular returns from their investments. During such testing times, what is that one investment drive that every investor needs to pay attention to? It is having a fixed income portfolio.
So what do we mean by a ‘fixed income portfolio’? A fixed income portfolio comprises investments that pay a fixed interest until their maturity date. Upon maturity, the principal amount of the security is paid back to the investor.
– The fixed income investing strategy focuses on generating returns off of low-risk securities with a fixed interest rate.
– A fixed income portfolio comprises certificates of deposits (CDs), Treasury bills, bonds and mutual funds, which are low-risk with ascertained interest.
Having a steady portfolio eliminates the risk of low returns, sustains through high market volatility and gives regular returns on investments. Compared to other investment drivers, a fixed income portfolio may not seem as glamorous and exciting, but it provides a more steady and regular in-flow of cash which makes it easier to sustain.
While the main benefit of fixed income portfolio is that it eliminates the risk of returns during market disturbances, read below for more benefits:
Usual investment tool gives returns semi-annually, monthly, quarterly or even on an annual basis. A fixed income portfolio gives a regular and steady flow of income which protects your portfolio during high market volatility.
A fixed income portfolio reaps the benefits of having a diverse range of investment tools which have their respective roles and functions. Not only this makes your portfolio attractive but also generates income from the various tools.
Protecting the value of the investment through assets that have a stated objective of return of principal. Retirees may rely on their investments to provide income. Because fixed income typically carries less risk, these assets can be a good choice for investors who have less time to recoup losses.
What are the risks associated with having a Fixed income portfolio?
Inflation is a source of risk for fixed income portfolios. They provide a fixed amount of income at regular intervals but with inflation, the purchasing power of the consumer decreases
With high interest rates, the value of the investment tools decrease. Interest rate fluctuations are the major cause of price volatility in bond markets.
Investing in corporate bonds increases the chances of credit risks. The possibility that an issuer defaults its debts. If this happens, the investor may not receive the full value of their principal investment.
So how does one start with a Fixed Income Portfolio
Laddered bond investing
Laddered bond investing strategy means the investor invests their money in purchasing fixed income securities with different maturity dates, in the form of a ladder.
Bullet bond investing
Just the inverse of Laddered bond investing, this strategy involves investment by purchasing fixed income securities with the same maturity dates
The bullet investing strategy is generally adopted by investors who may need large amounts of funds in the future
Barbell bond investing
Barbell bond investing means investing in short term and long-term bonds. The idea is to pay close attention to the short term bonds of the portfolio and keep rolling them into new issues upon maturing.
The importance of Fixed Income Portfolio is long lost amongst so many tools available to generate more money. Preservation of capital with a guaranteed income stream becomes the most important goal if you invest in FIP (Fixed income portfolio)
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