Tags: Retirement | fixed income insecurities | pros | cons

Pros and Cons of Fixed Income Securities

By    |   Tuesday, 05 May 2015 12:25 PM

A fixed income security pays back a set amount of money at regular intervals from bonds, certificates of deposit or other secure investments. Fixed income securities have a lower investment risk and are designed for payouts as expected when purchased.

The securities are often used as retirement income investments because they provide reliable income over time.

When you buy bonds from local or federal governments or CDs from banks, the maturity date is set for the investment to begin paying out. The rate of return is also set as to how much will be paid out and at what intervals.

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There are a number of positive factors to fixed income securities. They are safe investments. It is not possible to lose your initial investment because the securities are guaranteed by various financial laws and institutions. They are designed to pay at steady rate after reaching maturity.

The bond market is generally less volatile than the stock market, so risks are reduced and almost non-existent with federal bonds.

Credit worthiness is a critical component in choosing the best bonds for your portfolio. You can check the strength and reputation of the bond issuer through several bond rating agencies, such as Moody's and Standard & Poor's.

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However, with low-risk comes low-return. You will receive a steady income from a fixed income security, but it will usually be at a modest rate. Add to that the possibility of a rising inflation rate over a long period of time and it may take a significant bite out of your fixed income payouts.

If you find a bond that pays a higher yield than expected, review the credit rating of the issuer. Sometimes higher yields are paid for riskier bonds. Make sure you are comfortable the credit worthiness of the issuer so that it is likely it will pay out as you expect.

Fixed income securities are often considered the safest investment after cash deposited in your savings account. For a sound portfolio, you should have a variety of investments. Talk to your financial advisor about fixed income securities for your particular needs.

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A fixed income security pays back a set amount of money at regular intervals from bonds, certificates of deposit or other secure investments. Fixed income securities have a lower investment risk and are designed for payouts as expected when purchased.
fixed income insecurities, pros, cons
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2015-25-05
Tuesday, 05 May 2015 12:25 PM
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