Fixed-Income Investing Tempering the Volatility of a Portfolio Fixed-income securities provide diversification and risk control within investment portfolios. They enhance stability and usually offer safer but lower-yielding returns than stocks. They are generally exposed to less risk than equity investments. Introduction to Fixed-Income Instruments Fixed-income investments include:   Investment contracts Certificates of deposit (CDs) Guaranteed Investment Certificates (GIC) When you invest in fixed-income instruments, you are lending money to the issuer, which can be the government, a corporation, bank, or insurance company. For the right to use your money, the issuer promises to repay the amount loaned on a specified maturity date. On most types of bonds, the issuer promises to pay periodic fixed-interest payments over the term of the loan, hence the name fixed income. Typically, fixed-income investments fluctuate less and in different directions than equities. This low correlation tempers the volatility of a portfolio when the two types of investments are combined. Bonds: The Most Common Fixed-Income Instrument Bonds, similar to IOUs, are the most common fixed-income instrument. Corporate bondholders, for example, don't share in a company's profits, but are paid a fixed return on their investment. Bondholders have claims on a company's assets in case of bankruptcy — a claim superior to that of a common shareholder. Individual bond prices will fluctuate, but as long as the bond is held to maturity, and the issuer has not defaulted, the original principal will be repaid. However, if the bond is sold before maturity, the amount received may be different than the principal. For more information about bonds, see All About Bonds. Past performance is not indicative of future results.			Related Articles All about Bonds Printer friendly version of this page Send feedback or comments Site Search

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