Home Finance 5 Reasons Why Fixed Income Is A Smart Investment Choice

5 Reasons Why Fixed Income Is A Smart Investment Choice

by Biljana Denic

Last year, people saw how important is investing and saving, and many types of investments became popular, including crypto trading, oil trading, investing in gold, real estate, and so on. You must take all the aspects in mind of every choice possible, and see which things are good for you, and which ones you must avoid. According to räntefonder, this type is very different than the stock exchange, and the investor has more control over the potential risks and benefits, and the amount of money they are ready to give or spend.

A fixed income fund is a fund that’s formed on promissory notes, as proof that the investor made a loan of money for some purpose, and he/she gets a guarantee note, or bond, so they can assure the loaner they will get the money back. The bonds are proof that they are obligated to do that. Even though it seems pretty simple, this type can be risky too. This is an act of preserving the capital, and get a guaranteed income from it. But, is there anything that makes fixed income investments better than anything else?

Let’s see in this article:

1. Not so prone to stock risks

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This choice brings less risk than stock trading because the action is not prone or sensitive to the global economic changes, politics, geography, and the global finance sector. People who choose it usually have a goal they want to earn and safe, for example, retirement, or you just want to improve your investment portfolio.

2. You are preserving the capital

People love this option, and it’s very popular among those who don’t want to take huge risks. By capital preservation, you are protecting the whole amount you invested, and wait for it to become profitable, so you can make some money on it. The losses occur less often compared to other types, but there is another thing that you must consider – inflation. When or if that happens, your investments may lose their value over the night.

3. It generates some income

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You can’t expect to double the income, because it’s slow and pretty passive. But, surely you can generate some amount of profit, that will end up in getting back the money you invested, and some portion of the profit, depending on where and how you invested your money, and how are the things going with that project.

4. A return of your money is the least you can expect

Most of these fixed income funds are made to give attractive and nice returns to the investors. They can sign a contract at the initial phase, or they can change the return they require, according to how things are working out. The least they can take is the very same amount of money they previously invested.

5. Stable through the time

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Bonds are known for their stability, and as we said, they are not much affected by the global financial crisis, stock market fluctuations, and so on. Even in a case when the company faces bankruptcy, the investors, known as bondholders, have a chance to get back their money, which is not the case with the stocks.

Is it good, or is it bad for the investors?

There are so many factors that can make this type of investment both bad and good for the people who want to earn some money from it. First, it provides a steady income, and the bondholder has immediate access to cash. That helps them plan their spending, even though they don’t get much back. But, at the same time, they are a good point to have in your trading portfolio, even though the returns are low, and the value may drop over time. The inflation and credit risks are always there, and liquidity risks too.

Even though it’s been the safest option in recent years, the truth is you can lose money when investing in bonds, or you can get frustrated with the return, knowing that other types bring a lot more profit. At the same time, the good thing is that if you don’t have much time to follow all those changes on the market, fixed income funds are always a better choice for you.

How to invest?

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You can use some web platforms and find your most optimal offer, or you can sign a contract with someone you know. You can choose to invest in smaller companies or even projects and causes, or you can take a part in some big company. No matter what you choose, that will help you build your portfolio, and gain more experience, so you can be ready for riskier steps in the future.

As an investor, you can buy a single bond, or you can do that through mutual funds. It’s on you to find the most suitable one for you, and monitor the performance over time. It’s on you to decide that you want your profit, and it will be paid for you, according to the contract. If you think that you can make a mistake, you can find a manager or advisor who will help you through the whole process, and you will avoid those risky steps, and learn how to make a profit from the bonds and funds.

Most people today are afraid to invest their capital in something profitable because the risks make the whole process not trustable. Living in a time of global economy and financial crisis, and a pandemic on top of it is not the most appropriate time to spend your money on risky actions. But, at the same time, it showed us that maybe if we did that in the past, our lives would be much different right now.

So, if you think it’s a coincidence that people are getting more and more interested in investments after the coronavirus took over the world, you are obviously wrong. Hopefully, they will be more courageous to invest in the future, ensuring they have a stable source of income for difficult times.