Fixed income is any kind of investment that brings about a fixed or regular return. The definition of a fixed form of income is “a debt instrument that pays an unchanging amount of money to its holder (owner) at prescribed times.” Examples of these investments include bonds, debentures, preference shares and savings accounts.
Any financial investment that is capable of ensuring a guaranteed rate of return is able to bring about a fixed income for the person in question. Investors are always looking to generate fixed income because it lowers risks to their portfolios and it guarantees sources of income streams. Bonds can bring about a fixed income but they generally have low interest rates. While they generally earn less than bonds, certificates of deposit (CDs) and savings accounts are two other sources of fixed income. Real estate investment can also be a type of income that is fixed as long as there is a long-term tenancy agreement in place that give way to rental returns on a monthly basis.
If you choose to purchase individual bonds then not only will they provide you with a guaranteed rate of return but also they come with a level of flexibility attached to them. However the returns on individual bonds are not as high as on other types of investments. You may wish to sell some or all of your bonds before they mature in order to invest in something that can bring forth greater returns for you. Some of the most popular types of individual bonds in the United States include treasury bonds, agency bonds, municipal bonds and corporate bonds. To learn more about each kind of bond do a search over the Internet. You might also want to check your local library or a bookstore in your area for books that can teach you all about bonds.
You may wonder what the benefits are to having a fixed income. First of all, having such a source of income reduces stability in a portfolio. It does this by lowering the overall risk profile which is always a good thing.
Fixed income securities yield dividends. These dividends can then be used to generate income streams from one or more sources. Having more than one source of income is always something an investor should be pleased about.
When it comes to doing your taxes, having an income source that is fixed can be useful. Federal, municipal and state governments do not impose taxes on certain kinds of investments that provide a fixed income.