When investing money, one will have the option of betting on fixed income securities or variable ones. Fixed income securities include instruments like bonds, Individual Savings Accounts (ISA), Certificate of Deposit (CoD), and so on. In contrast, options like equities typically come under variable income securities. Below, we look at four benefits of investing in fixed income securities.
The biggest advantage of a fixed income security is that you are guaranteed a steady return on investment for a specific period of time. For example, if you invest in 3-year bonds at 3%, then you will receive 3 percent return on your investment every year for three years. It is guaranteed. Under no condition shall the return go low even to 2.99%. In contrast, with a variable income security, you have zero control over how much return you can get per year. Maybe you will receive a 5% return this year, and then 0% for the next three years. If you are unable to live with this uncertainty, then it is better that you only consider investing in fixed income securities. And in case you are interested in exploring the possibility of investing in bonds, check out Best-Savings-Rate.co.uk to know some of the best bonds in the market right now.
Safety Of Deposit
When it comes to the matter of safety of deposit, fixed income securities again outshine the variable ones. Most fixed income securities will always specify the date on which the invested amount will be returned to the investor. As such, those who issue fixed securities are legally obliged to return back the money right on the specified date, failing which legal action can be taken against them for recovering the amount. For example, a government bond will typically specify the maturity date on which the invested amount will be paid back. In contrast, there is usually no such safety of deposit guaranteed by any variable income securities. If you invest in stocks, then a large value of that investment can be wiped out if the company performance dips and stock prices crash.
A well-balanced portfolio will include both high-risk investments that offer high profits and low-risk investments that guarantee the stability of the principal. A portfolio that is only focused on making as much profits as possible without being concerned about the capital is likely to go bust due to excessive risk-taking. And as an investor, you can end up as a pauper if you follow such a high-risk investment strategy. The best way to protect your financial future is to invest an equal amount in fixed income securities. This way, even if the high-risk investments are wiped out, you still have the fixed income securities to rely on.
Priority During Company Liquidation
Fixed income securities can also get priority over other securities during company liquidation. For example, corporate bonds are considered to be debts that the business owes to the investors. And since companies are required to honor their obligations to their debtors prior to the shareholders, bonds will be paid off first from the proceeds of the company liquidation. As such, by investing in company bonds rather than shares, you can be assured of a better protection of your investment if the business were to be declared bankrupt.