What the Heck Does "Fixed Income" Mean?

What the Heck Does "Fixed Income" Mean?

The difference between debt and equity investments

Why should you have fixed income investments?

The difference between debt and equity investments

Fixed income investments are generally debt or other contractual obligations

• Money market instruments
• Bonds
• Preferred stock
• Fixed annuities

Debt investments are contracts that are safer yet generally less profitable than equity (stock) investments

Debt investments must be paid back, with interest

Provide fixed interest payments on a predetermined schedule

But after the contract governing the debt is signed, the investor has little or no control over the business

Equity investments don't have to be paid back

No contractual obligation like debt

Future income, if any, is very unpredictable

But the investor gets to own and run a portion of the business

Bottom line

Bond investments provide more stability in income, with little or no upside

Equity investments provide little stability, but offer higher upside potential

Why should you have fixed income investments?

Fixed income investments provide a stream of reliable income

Very important if you're retired and need to budget your income and spending

Fixed income investments provide safety in your portfolio's value

Price changes in bonds are generally less dramatic than in stocks