Fixed income investments certainly don’t offer the same potential for massive returns as you would find in the stock market, however fixed income investments have an important place in every investment portfolio. There is no speculation or gambling here; in fact, these investments are used to reduce your portfolio’s overall degree of risk.
Depending on who issues the investment, the reward may be a guaranteed return of investment paid out at specified intervals, resulting in a steady cash flow. A wide range of bonds, securities, GIC’s and more are usually issued by the government, or a corporation.
Fixed Income Investments
Term deposits and guaranteed investment certificates are liquid investments that offer a pre-determined rate over a set period of time. Although the investor can cash out at any time, they will pay a penalty for cashing out before the maturation date. GIC’s are a great choice for those entering the investment market who are unsure of how to proceed, as they are available in terms as short as 30 days.
Mortgage-backed securities provide a monthly income for investors seeking a safe fixed-rate option. Each month, the investor receives a share of the interest and principal on a pool of several mortgages.
Provincial savings bonds carry a slightly higher risk than Government of Canada bonds, although they still represent one of the safest investment options available. Provincial bonds pay a guaranteed, fixed level of interest and are available for one to thirty year terms. With the higher risk comes a higher yield than that offered by the Government of Canada bond.
T-Bills and Government of Canada bonds are completely risk-free if held until maturity. The government guarantees every cent of the principal and interest, making their bonds the safest investment choice by far. These bonds are available in Canadian or American currencies, although an American currency GOC bond is still considered Canadian content in your portfolio. Terms range from one to thirty years, with a minimum $5000 investment for Canadian currency bonds, or $25 000 for USD bonds. GOC bonds are RRIF, RSP, and TFSA eligible and provide a safe option for investment portfolios.
Fixed income investments are a necessity in a diversified portfolio. Before purchasing, consider your needs and the level of risk you are willing to take. Although most fixed income investments are liquid, you must consider the penalties that will apply if you need to cash out before the maturation date. A knowledgeable broker can help you choose a fixed income investment term and conditions best suited to your financial goals and current investment capital.