Your Guide to Fixed-Income Investing

Mar 22, 2024 1 min read

As you near retirement, your appetite for risk is likely to decrease as you plan to rely on your investments for regular income. This is where fixed-income investment strategies often come into play. While they are generally less risky than investing in growth-oriented products like stocks, fixed income investments aren’t completely risk-free. Here’s what you need to know about this approach.

What Is Fixed-Income Investing?

Put simply, fixed-income investing is a strategy that focuses on giving you a consistent (fixed) stream of money. This includes a class of assets and securities that pay out a set level of cash flows to investors, typically in the form of fixed interest or dividends.

Fixed-Income Investment Examples

The most common types of fixed-income securities include the following:

Federal Government Bonds

The federal government needs to raise capital, so it issues a range of fixed-income investments such as Treasury bills, Treasury notes and Treasury bonds. They come with a wide range of maturity dates, and most of them make regularly scheduled payments of accrued interest, which are known as coupons. Treasury bills pay the interest and return the principal at the end of the term.

Municipal Bonds

City, county and state governments also need capital to cover the costs of big projects. A unique advantage of “muni” bonds is that they’re typically tax-free in the state they’re issued in and generally free of federal tax, offering potentially more attractive returns.

Corporate Bonds

Companies need money to grow, and corporate bonds offer an opportunity to raise capital while providing a regular income to bondholders.

Certificates of Deposit

A certificate of deposit, or CD, is a type of savings account offered by banks and credit unions. You generally agree to keep your money in the CD without taking a withdrawal for a specified length of time. Withdrawing money early means paying a penalty fee to the bank.

Money Market Funds

A kind of mutual fund that invests in short-term debt securities such as CDs, Treasuries and other forms of short-term corporate debt, money market funds can provide a liquid source of money, but their returns will fluctuate with prevailing interest rates.

Pros and Cons of Fixed-Income Investment Strategies

Investing in fixed-income securities can offer investors a steady stream of income over the life of the bond or product and can help investors stabilize the risk-return in their investment portfolio. 

The downside of using fixed-income investments is the potential to lose value when interest rates change. Because you’ve locked in an investment where the primary driver of the value is the interest rate, if that interest rate goes up, the value of your investment is lower than new investments. 

Don’t Go At It Alone

Navigating the world of investments and retirement planning can often feel overwhelming — that’s why we’re here. When you’re ready to sit down with a professional and dive into the financial planning process, connect with a Farm Bureau advisor to get started. Our advisors take the time to get to know you and work to develop a strategy that puts your needs and priorities first.

Want to learn more?

Contact a local FBFS agent or advisor for answers personalized to you.