These types of bonds bear interest, and the issuer of them is required to pay the person who purchased the bond a certain amount of money according to specific intervals. When the loan has matured, the issuer is then required to pay the bondholder the principal amount of the bond as well. These bonds are advantageous because they provide a regular form of income and can be greatly diversified.
With bond funds, a person will hand over his or her money and allow a professional portfolio manager to invest the money. Most times, the money is invested into individual bonds. Liquidity and income generation are two benefits of bond funds.
Exchange-Traded Funds (ETFs)
ETFs are a bit more confusing than individual and regular bonds. ETFs are considered to be “baskets of investments.” They are traded numerous times throughout the period of a day, and often times, they are passively managed. They do provide a great way to diversely invest money, and even better is the fact that they allow for intraday trading to take place.
Certificates of Deposit (CDs)
These types of investments pay the holder a fixed income over a set period of time; the interest paid is usually a fixed amount. CDs offer flexibility, liquidity, and they are also insured by the FDIC.
Money Market Fund
This type of fixed income comes in the form of a mutual fund. The money invested tends to come with minimal credit risk, which is good, but the maturities of the funds tend to be short. The money profited from these funds usually qualifies for tax advantages.
Tips for Choosing the Best Fixed Income Investments
There’s no right or wrong answer for the question “what are the best fixed income investments?”. A person’s individual financial status will determine which investments are right for him or her. For a person who is wealthy and financially secure, then riskier investments are okay. On the other hand, for a person who has little financial security, it’s imperative to take advantage of less riskier investments, which include individual bonds and CDs.