What are fixed-income investments?

Key Takeaways

Fixed-income investments can provide a steady stream of income while helping bring stability to a diversified portfolio.

• Fixed-income investments can provide predictable income and portfolio stability through regular interest payments and the return of principal at maturity.
• Edward Jones offers a wide selection of fixed-income options, including municipal bonds, certificates of deposit, U.S. Treasury bonds and agency bonds.
• Diversifying across fixed-income investments can help manage risk and support income needs, with factors such as maturity, credit quality, interest rates and inflation being considered while evaluating the options.

Fixed-income investments, such as bonds, can provide regular income and help add stability to a diversified portfolio. These investments involve lending money to governments, corporations or other issuers in exchange for interest payments and the return of principal at maturity.

Your Edward Jones financial advisor can help you build a fixed-income strategy that aligns with your income needs, investment timeline and overall financial goals. We also provide access to a broad range of fixed-income opportunities, including municipal bonds that help fund public projects in communities across the country.

How do fixed-income investments function?

A fixed-income investment generally provides investors with regular interest payments in exchange for lending money for a set period of time, much like a standard loan arrangement.

For example, a 10-year U.S. Treasury note with a 4.5% coupon would pay $450 in annual interest on a $10,000 investment. At maturity, you would receive your original $10,000 principal back, in addition to having received the interest paid over the life of the bond, $4,500 total.

Fixed-income investments examples

There are various types of fixed-income investments available, each offering its own set of attributes.

Municipal bonds

Explore municipal bonds offered by states, cities, counties and towns to fund public projects, some of which Edward Jones serves as a competitive co-managing underwriter.

Learn more about municipal bonds

Certificates of deposit

Certificates of deposit (CDs) provide a predictable income, generally with FDIC insurance to protect your principal. They can also be used to build a "ladder" strategy similar to bonds. We offer competitive interest rates on a wide selection of CDs with varying maturity dates and interest payment options.

Learn more about CDs

U.S. Treasuries

A U.S. Treasury bond is essentially a loan that you lend to the federal government. There are several types of U.S. government treasuries, including bills, notes, TIPS, STRIPS and bonds. Compare each option and today's rates to find the best fit for your investing goals.

Learn more about treasuries

Agency bonds

Agency bonds are issued by organizations such as Fannie Mae, Freddie Mac, the Federal Home Loan Bank and the Tennessee Valley Authority. They may offer higher yields than U.S. Treasuries and can provide liquidity and, in some cases, tax advantages.

Learn more about agency bonds

What are the advantages of fixed-income investments?

Aside from predictable returns, fixed-income investments have other advantages:

• Fixed-income investments are an excellent way to diversify your portfolio to mitigate risk.
• Many types of fixed-income investments are liquid, so they can easily be bought or sold daily.
• Fixed-income investments provide regular returns during recessions or economic downturns.

How we can help

Fixed-income investments can add stability and diversity to an existing portfolio or help anchor a new one. Learn more about working with a financial advisor as you get started with fixed-income investing.

Frequently Asked Questions

Are annuities a good retirement investment?

Annuities can provide predictable income in retirement, including payments for a set period or for life. However, they may involve fees, withdrawal restrictions and limited access to your money.

Are annuities a good choice for risk-averse savers?

Annuities may appeal to investors who prioritize stability and predictable income over maximizing investment growth. For example, a fixed annuity can provide a stated interest rate for a specified period, while an immediate or income annuity can convert a portion of your savings into a stream of payments.

Which types of annuities are best for reliable retirement income?

Your financial advisor can help you select the most appropriate type of annuity for your retirement goals. The right choice depends on how much income you need, when you need it, how much liquidity you want and how much investment risk you're willing to accept.

• Immediate annuities can provide income soon after you make your investment.
• Deferred income annuities can provide guaranteed income beginning at a future date.
• Fixed annuities offer a predictable interest rate for a specified period.
• Variable annuities tie investment performance to underlying portfolios and may offer additional features or guarantees.
• Fixed indexed annuities provide interest based partly on the performance of a market index, subject to specific rules and limits.

Are there annuity-like investments that can help diversify a portfolio?

There are some annuity-like investments, such as certificates of deposit, Treasury bonds and dividend-paying stocks that can provide steady cash flow within a diversified portfolio.

How should I choose a fixed-income allocation when interest rates or inflation are rising?

A well-designed fixed-income strategy spreads exposure by laddering different maturities and using different credit qualities and types of bonds to address inflation and interest rate risk.

How can I diversify my fixed-income investments?

A diverse fixed-income portfolio might include a combination of government bonds, corporate bonds, municipal bonds, Treasury inflation-protected securities and other types of fixed-income investments. Investors may also diversify by maturity, credit quality and duration.

Can diversifying fixed income help reduce risk and improve yields?

Different types of bonds respond differently to changes in interest rates, economic conditions, inflation and credit conditions. A diversified approach may provide a better balance between income and risk than concentrating on a single type of bond. Though diversification can help manage risk, it doesn't guarantee higher returns or eliminate losses.

How can I generate reliable retirement income from bonds?

One approach is a diversified bond portfolio that generates interest payments over time. Another is a bond ladder, in which bonds with different maturity dates are purchased so that investments mature at regular intervals. A bond ladder can help create a predictable schedule of cash flows while reducing the need to sell bonds at an unfavorable time.

What investments can provide steady monthly retirement income?

Bonds, bond funds, dividend-paying stocks, certificates of deposit and annuities can all contribute to a steady retirement-income strategy.

How should I decide between annuities and bonds for retirement income?

Annuities and bonds can play complementary roles in a retirement strategy. Annuities may provide predictable income, while bonds can offer income, diversification and liquidity. Your financial advisor can help determine the right mix for your goals.