Fixed income investments are a popular choice for investors looking to add stability and diversification to their portfolios. While stocks can be volatile and unpredictable, the best fixed income investments offer a more reliable income stream and tend to be less risky.
However, with so many different types of fixed-income investments available, it can be difficult to determine which ones are the best choices. In this article, we will explore some of the top fixed-income investments and discuss their pros and cons, so you can make an informed decision about which ones are right for you.
1. Corporate Bonds
One of the most popular types of fixed-income investments is the corporate bond. Corporate bonds are issued by companies to raise money for various purposes, such as expanding their business or funding new projects. They offer a relatively high level of security, as companies are required to pay back the principal and interest on their bonds.
However, the level of risk can vary depending on the creditworthiness of the issuing company. Companies with a strong credit rating, such as those with a high credit score or a long track record of stability and profitability, tend to offer lower-risk bonds. On the other hand, bonds issued by companies with a lower credit rating may offer higher returns but also come with a higher level of risk.
Boeing, Kroger Co., and CVS Health Corp. offer great corporate bonds for investors, with about a 4% yield.
2. Government Bond
Another type of fixed-income investment is the government bond. Government bonds, also known as treasuries, are issued by national governments to fund their operations and pay for public projects. They tend to be very safe investments, as the risk of default is low. However, they also tend to offer lower returns than other types of bonds due to the lower level of risk.
U.S. Treasury bonds are very safe and have minimal risk. The 10-year treasury note is a great option for investors. It’s a commonly cited benchmark and has implications on the interest rates of mortgages, auto loans, and other loan products.
3. Municipal Bonds
Municipal bonds are another option for fixed-income investors. These bonds are issued by state and local governments to fund public projects, such as building schools or improving infrastructure. They can offer tax advantages, as the interest earned on municipal bonds is typically exempt from federal income tax. However, the risk of default can vary depending on the financial health of the issuing municipality.
The following municipal bonds are slated to perform very well in 2023, based on previous returns: BATEX, MDYHX, THYTX, DVHIX, and TXRAX.
4. Bond Fund
Another popular type of fixed-income investment is the bond fund. Bond funds are portfolios of various types of bonds, which can include corporate bonds, government bonds, and municipal bonds. They offer the benefits of diversification, allowing investors to spread their risk across multiple types of bonds. However, bond funds also come with some added risks, as the fund’s value can fluctuate based on changes in the bond market.
One option for investors looking for a more stable stream of income is the annuity. Annuities are financial products that provide a guaranteed stream of income for a set period of time or for the lifetime of the investor. They can be a good choice for retirement planning, as they offer a reliable source of income that can help to supplement other retirement savings. However, annuities also come with some drawbacks, including higher fees and a lack of liquidity.
The Oceanview Annuity (2-year), Americo Annuity (3-year), and Athene Annuity (5 and 7-year) are great options for investors looking to invest with reputable A-rated insurance companies for their retirement.
6. Certificate of Deposit (CD)
Another option for fixed-income investors is the certificate of deposit (CD). CDs are low-risk savings products offered by banks and credit unions. They offer a fixed rate of return, and the principal is guaranteed by the issuing institution. CDs can be a good choice for investors looking for a safe place to park their money for a set period of time. However, they also tend to offer lower returns compared to other types of fixed-income investments.
Wrapping Up Fixed-Income Investments
In summary, there are many different types of fixed-income investments available, each with its own set of pros and cons. Corporate bonds offer a relatively high level of security, but the level of risk can vary depending on the creditworthiness of the issuing company. Government bonds are very safe but also tend to offer lower returns. Municipal bonds offer tax advantages, but the risk of default can vary depending on the financial health of the issuing municipality. It’s important to carefully consider what each fixed-income investment has to offer, the possible risks, and how it fits in with your future investing goals.
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