Is a fixed income investment such a good business?

By: Mathew Petrenko

Investment decisions are very challenging for an individual even if they have an MBA. In most cases people invest deciding on the basis of their propensity towards risk, family situation and personal bias.

People who choose stability and security opt for fixed income. Fixed income is any financial instrument that provides you regular payments, for instance a pension or a bank deposit. Certain financial instruments can help you with a fixed income over a given time period. A bond, for example, pays out an income as an interest on its nominal value. When the bond matures (i.e. maturity is the time when the cash should be paid back), you receive the principal back (the par value of the bond has to be paid back).

The opposite of fixed income investment can be a high yield investment into common shares. To a certain degree a bond is similar to IOU note, as it is a word of promise to return the money in ther future. When you buy a bond, you can call yourself a creditor. When you obtain stock, you buy yourself a part of the company. When you obtain common shares of a publicly traded company, you become a shareholder or co-owner of the company. Acquiring stock of a venturing start-up firm can become a high yield investment. When profits go up, so do the risks. People tend to have different propensity towards risk. When you are ambitious, have an excellent job and there is no debt to pay out, you are quite likely to agree to higher risks in exchange for bigger payoffs. While pensioners would rather go for something more predictable to secure their old age and save the relatives from the need to pay for their funeral. A fixed investment into real estate can also ensure stability.

A regular decision made by many investors is to combine high yield investment choices with a more secure fixed income. Such a strategy creates a well-distributed investment basket. The bad news is that with a balance your incomes will never be as astonishing as with high yield investments only. For instance, when you have ten thousand euros equally distributed into stocks that provide you with 20 % of income every year and some other securities that provide you with you only 10%, you end up making 1,500 of income per year. If the capital has been distributed equally, that is. Should anything happen to your riskier security, you are still going to have income with the help of the secure one.

Investment markets are rather complicated, so if youhave some big ideas about where to invest, ask for professional assistance to go for only smart choices.

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Mathew Petrenko is a scientist in financial strategy and writer of many articles on Fixed Income. For more information see our site. Mathew Petrenko is a permanent writer on the subjects of High Yield Investment for various business journals. For more data come to our site.

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