We all know that during the times of economic turndown investors run towards the fixed income securities. It is only because fixed income security is the only asset class which can give fair returns in a falling economy. But, that shouldn’t be the only reason to invest in fixed income securities. I mean, there are a lot of reasons to invest in this asset class and get good returns.
In this article, we will explain it to you how the reliable and steady source of investment income it is and why you should invest in fixed income securities.
Advantages of Investing in Fixed Income Securities
Fixed income securities such as government bonds, corporate bonds, treasury bonds, preferred stocks, and certificates of deposit (CDs) are considered more stable than equity holdings. Although fixed income security does not provide inflation-adjusted returns like direct equity it sure does have some advantages.
The primary benefit of having fixed income security is the capital preservation. It is due to the balance in the portfolio which doesn’t affect by a small portion of direct equities. And as the name suggests, a fixed income will come to you after a specific date. Due to the fluctuation and market volatility, sometimes the objective of investment can’t be met. But, with fixed income securities, one can balance his/her portfolio fluctuation. The financial institutions that provide CDs are backed by deposit insurance agencies that protect the customers’ investments.
It is the second benefit of fixed income securities which can provide investors with a steady flow of income in the form of dividends and interest payments. This makes a consistent source of the cash flow of income which fixed during the issuance of security and these payments will be stable as long as the issuing entity does not default.
Government bonds are the least likely to default on dividend payments and interests but corporate bonds with lower agency credit ratings are more likely to default risk for investors.
Higher Priority Claim to Assets
Whether it is the capital structure of equity or debt investment, the fixed income investors also benefit from their position which gets high priority over common and preferred stockholders of the same corporation.
Infographics: Why Should You Invest in Fixed Income Securities?
Hope, this article helped in a way you expected it to be. Adding bonds to the portfolio may help you in smooth out the highs and lows. If you have a serious long-term financial goal then you should go fixed income security because of their diversification benefit, income generation, capital preservation, and tax exemptions etc. Nevertheless, if you have any query then doesn’t forget to mention in the comment section below.
Note: All information & data provided in this article is for the educational purpose as well as to give general information on the finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.