Fixed-income investing is a safe way to make money with investments.
Risk-adverse investors still have a way to increase their investible funds.
Fixed income investing, putting money in products such as certificates of deposit or money market funds, is the safest way to make money through investments. Safety (many products are guaranteed by the federal government), security and predictable outcome are the top reasons to consider fixed income investing for safe portfolio growth.
Fixed-income investing means purchasing a product with a pre-determined interest rate payout. Because of the safety of the investment, the interest rates are usually low, but in most cases they are guaranteed, and the investor can know with some sense of certainty what they are gaining through their investment.
For instance, certificates of despite and money market funds are guaranteed by the Federal Deposit and Insurance Corporation (FDIC). For the risk-adverse, there is no better bet as a way to increase your bottom line.
What you are doing when you invest in a fixed-income product is giving money to a firm so it can invest those funds in something else, and the firm is guaranteeing that after a pre-determined period of time, your investment will pay off in the form of interest. You are loaning the money and getting a loan payment back at the end of the loan period.
In order to increase the interest rate you receive on a fixed-income product, longer-term products offer better interest rates because the company receiving the funds has a longer period of time to invest the funds you have given them.
The simple advantage in fixed-income investing is that you know what you are getting back, so you can budget your money and investments accordingly. Similarly, you know exactly what you are going to be taxed on, so that annual headache is a little easier as well.
Some investors used fixed-income products as a safety net while using other funds for growth investing that carries more of a risk of loss. The only possible loss of fixed-income investing is if the company you invest in goes bankrupt, and with bank-issued products, the guarantee protects the investor completely.
Bond funds are another form of fixed-income investing. Bonds are issued primarily by governments – municipal, state or federal – and promise a fixed interest rate payoff at the end of the bond term, or maturation. Usually such bonds are for multiple years, which require the patience from the investor to wait for the interest income.
Fixed-income investing is most popular among retirees who are living off a set income and need to know when their distributions are coming and how much they are worth.
Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.
In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.
McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.
McDill is the father of four children, and an active fan of soccer, Jimmy Buffett and all things Disney.