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Building a Modern Fixed-Income Portfolio

The world of investment is packed with complex concepts and accessible options that may seem daunting and intimidating to take on at first, but when researched and studied practically require nothing but effort. One such idea emerging from the field of investing is known as fixed income allocation.

Fixed Income Allocation Defined:

Fixed income, as the name suggests, is a type of investment which is coupled with a fixed or predictable return, and promises these returns at regular intervals, such as annually, semi-annually, quarterly or monthly. The predictable nature of fixed income investments complements the uncertain returns from equities perfectly, thus allowing an investor to efficiently balance his/her Investment Portfolio and create a diversified asset-inventory.

Notwithstanding, fixed-income investing is often overlooked when competing with fast-paced income generating options, such as stocks, as despite exuding an air of uncertainty, stocks promise daily action and higher returns. However, depending on various factors, including the stage of investing you are at, age, and risk tolerance, fixed income allocation becomes an essential investment option, regardless of preference, as with the late years approaching securing your capital and ensuring a steady stream of income takes precedence.

Fixed-Income Investment Options

Fixed-income instruments cover a wide swath of low-risk investments. These are vehicles issued for a specific period of time, ranging from a handful of months to decades, and are issued by companies and government for the purpose of raising capital. These vehicles include:

Real-Estate:  

There is nothing more delightful than owning a plot of premises and receiving a rich rent from it to secure your future financially. Although requiring sizeable investment, real-estate is considered a significant fixed-income option.

Real-Estate Investment Trusts (REITs):

Investing in REITs instead of choosing to become a landlord is another option available to investors in order to introduce diversity in their modern fixed-income investment portfolios. These high-yielding securities are regulated by the SEC, thus promising transparency. REITs also provide liquidity as they can be traded like equities, and deliver stable returns.

Bonds:

These fixed-income instruments form a substantial part of diversified investment portfolios. Ranging from municipal bonds and corporate bonds, these securities offer a variety of flavors, depending upon their maturity date, extent of risk, and stats of the company issuing these capital producing vehicles. High-yielding bonds, also known as junk bonds, are also a form of bond fund which offer above-market yields,  and are opted by investors to boost their fixed-income returns.

Treasuries:

These government issued instruments come in various alternatives, from Treasury Bills (T-bills), Treasury notes (T-notes), Treasury bonds (T-bonds), to last but not the least, Treasury Inflations Protected Securities (TIPS). Depending on the type of treasury, their maturity periods vary. Where T-bills, T-notes, and T-bonds provide security and a fixed-income, they fail to have the luxury to escape the effects of inflation. TIPS, on the other hand, are investment vehicles that are designed to protect investors against inflation, while offering modest coupon rates.


Bottom Line

Fixed-income allocation is a means of introducing a sense of security and dependency in an investment portfolio to balance out the ill-effects of risky investment options. Polishing your knowledge in relation to these fixed-income vehicles, an investor may become capable of constructing a healthy, strong, Diversified Investment Portfolio with good risk/rewards characteristics that complements their investment outlook.