Tags: Retirement | fixed income securities

6 Questions You Should Ask Your Broker About Fixed-Income Securities

By    |   Friday, 16 Oct 2015 03:02 PM

Overwhelmed by the idea of saving for retirement, many Americans opt to set up a fixed-income security in which an investor receives set periodic payments.

Fixed-income securities are desirable because they diminish the investor’s risk of asset allocation and stock market issues and are thus more reliable than other equity holdings. They most typically come in the forms of corporate or government bonds, preferred company stocks, and certificate of deposits (CDs).

Fixed-income securities are considered to be a relatively safe investment, as the investor is guaranteed to receive the amount they paid for the bond, or their principal balance, back over time. Despite their stability, there are still questions individuals should ask their brokers when setting-up a fixed-income security. Below are six important questions:

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1. What is a fixed-income security?
It is important to have a good understanding of any investment prior to stabling a security. Fixed-income securities are a type of investment that can come in several forms and can be confusing, but useful, for investors planning for retirement.

Investopedia defines a fixed-income security as “an investment that provides a return in the form of fixed periodic payments and the eventual return of principal at maturity.”

2. What benefits do fixed-income securities yield?
Fixed-income securities offer numerous benefits to investors. They can diversify an investor’s funds, provide steady retirement savings, and offer high claims to financial assets.

Providing a source of income in the form of interest payments is the primary advantage, Zacks Investment Research said. Some also are exempt from federal taxes, and the principal is protected from losses.

3. What risks do fixed-income securities carry?
Although considered a relatively safe type of bond, fixed-income securities have some risks. Interest rates, damaged credit, purchasing power, and market prices can all pose as risks for fixed-income securities, according to Investinginbonds.com, a website created by the Securities Industry and Financial Markets Association.

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4. How can I decide how vulnerable my fixed-income security would be to the accompanying risks?
People in certain financial situations may be more prone to the risks associate with fixed-income securities than others. It is important to consider a security’s duration an overall amount to determine how much a security is likely to change over the years.

5. What effect will inflation have on my fixed-income security?
Because investors receive their principal balance over time, it is important to factor the effect of inflation into retirement planning. In most cases, the Treasury Inflation Protected Securities (TIPS) offers a feature that automatically adjusts the principal value to inflation, according to First Trade.

6. What effect will interest have on my fixed-income security?
Fixed-income securities are typically guaranteed an annual interest amount, so it is important to ask your broker about interest to assure you are receiving the best rate possible. The annual interest amount is usually the security’s coupon rate multiplied by the security’s face value, according to T. Rowe Price.

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Overwhelmed by the idea of saving for retirement, many Americans opt to set up a fixed-income security in which an investor receives set periodic payments.
fixed income securities
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2015-02-16
Friday, 16 Oct 2015 03:02 PM
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