Fixed income refers to a class of investment assets that provides regular, predictable income streams in the form of interest or dividends. The most common fixed-income securities include bonds, certificates of deposit (CDs), and preferred stocks. Unlike equities, where returns are tied to the success and growth of the issuing company, fixed-income investments pay a fixed or predetermined interest rate at regular intervals until maturity. Bonds, for example, represent loans made by investors to governments, municipalities, or corporations, and they typically have a set maturity date at which the principal is returned. Fixed income is favored by investors seeking capital preservation and a steady income stream while managing risk.
The value of fixed-income securities can be influenced by interest rate movements; when interest rates rise, the market value of existing fixed-income investments tends to decrease. Investors often diversify their portfolios by including fixed-income securities to balance risk and enhance overall stability. Fixed income plays a vital role in financial planning, particularly for those in or nearing retirement, as it offers a reliable income source and serves as a counterbalance to more volatile equity investments in a well-rounded investment portfolio.