Understanding Fixed-Income: For Today and the Future

Fixed income is something many investors don’t understand, according to the 2019 survey, “Fixed Income, Not Fixed Thinking,” by BNY Mellon Investment Management, one of the largest asset managers in the world. The study revealed that the majority of Americans surveyed have a limited understanding of fixed-income investments, regardless of age, income, education level, and other demographics.

The lack of understanding ranged from bonds, different fixed-income solutions, including insurance products, investments inside a mutual fund, comprehending how fixed-income plays into retirement planning, and understanding its risk in comparison to other asset classes. The same study revealed that investors think fixed income is essential solely in the immediate run-up to retirement, or during the decumulation phase when investors start to draw from their retirement nest egg.

However, fixed-income investments can play a part in most investor’s portfolios at any age, and many advisors have incorporated fixed-income into client portfolios to obtain these key objectives:

  • Principal protection
  • Tax-deferred growth
  • Retirement income planning
  • Avoid Social Security income offset
  • Current income
  • Estate/Legacy planning

Before purchasing any fixed-income investment for your portfolio, it is crucial to understand all fees associated with it, if your money is available right away, and the surrender fees, if any. Secondly, following the fixed-income investment’s true return over time is essential to determine tax-consequences and it’s valuation during a down market. All of these factors in the decision to liquidate or hold the investment to maturity, if applicable. Since fixed income securities are debt, it is vital to understand the investment’s rating, and based on financial analysts’ research, if the issuer is likely to pay back their debt to investors at maturity.

Fixed-income securities are generally for conservative investors seeking a diversified portfolio. If you have questions regarding fixed-income or fixed-income investment currently in your portfolio, contact our office.

*Advisory services offered through Trajan Wealth, L.L.C., an SEC-registered investment adviser. 

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