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What are Fixed Income Assets?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 04 September 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Fixed income assets are financial investments with a known and dependable rate of return, with bonds being the most obvious example. The benefit to fixed income assets is the fact that investors know exactly what they are getting, both in the form of monthly income and as a payout when the assets mature. The cost is the lower overall returns; the low risk makes it harder to earn income from the assets, and people usually need to invest in bulk to make the purchase worth it, making up for minimal returns by buying in large volumes.

Bonds are available in a number of different forms, including those issued by national governments, municipalities, banks, and corporations. In all cases, they are a way of quickly raising capital. People buying them are providing a loan of their money, receiving interest in return. The interest represents the fixed income, and at the time the bond matures, the issuer must repay the principal. These fixed income assets can make up part of the mix of a portfolio to keep it stable, or people can choose to have a fixed income portfolio comprised solely of these types of investments.

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Issuers of fixed income assets receive ratings on the basis of reliability and quality. The higher the rating, the more dependable the investment, with a very low risk of default. Investments with lower ratings are more risky, and people may expose themselves to danger by investing, but the issuer may sweeten the deal with a higher interest rate. Sometimes, people may balance risks, investing in a few high risk fixed income assets with the goal of short term high returns, while backing up their investments with high rated options to keep their portfolios stable.

People in charge of managing fixed income assets usually measure performance against an industry benchmark and try to maintain an appropriate mixture of assets to meet that target. Investors can choose from a number of types of investment funds if they want to leave the work of management to someone with experience while taking advantage of pooled investments to access more assets. Financial publications write up reviews of various funds to provide guidance for people looking for the best investment for their needs.

These types of investments tend to be popular with conservative investors like older adults looking to bulk up retirement portfolios without exposing themselves to the risk of losing substantial amounts of money at an age when they cannot rebuild their investments in time to retire. They can also be suitable for investments made on another person's behalf, such as a child's, where people must exercise special care in investment decisions because they are stewarding someone else's money.

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