DEFINITION:
Fixed income refers to investments, such as bonds, that provide regular interest payments over time. Essentially, it’s like lending money to a government or corporation in return for periodic interest and the eventual return of the principal.
WHEN AND WHY IT’S USED:
Fixed income investments are used when investors seek steady income and lower risk compared to equities. They are particularly attractive during economic uncertainty or when investors need reliable cash flow for living expenses, such as in retirement. Bonds typically offer predictable returns, which can provide stability in a diversified portfolio.
IMPORTANCE IN COMMUNICATION:
Discussing fixed income with your advisor is vital for understanding how these investments contribute to the stability of your portfolio. It enables you to see how regular interest payments fit into your broader financial plan and helps you assess whether your income needs are being met. A clear understanding of fixed income can also prompt discussions about interest rate trends and credit risk.
Moreover, effective communication about fixed income ensures that your advisor tailors your portfolio to your risk tolerance. By discussing the role of bonds, you can better appreciate the balance between riskier assets and those providing security. This conversation is key to making informed decisions that support both long-term growth and short-term stability.
EXAMPLES IN COMMUNICATION:
“Can we increase the fixed income portion of my portfolio?”
“What are the benefits of investing in bonds right now?”