Investment can be a tricky business, with risks of losing as well as making money plainly apparent. There are also a huge number of products out there, each offering a differing ratio or risk to reward, and it can be extremely difficult for those new to the investing world to pick between them. One of the major issues people have, especially those that are retired, is having at least some form of guaranteed income at set times – not always available on many financial products. Fixed income investments however, do exactly that; whoever issues them must pay out at set times. Killik Co LLP report that fixed income investments are currently very popular with bank interest rates low.
How Does it Work?
Generally, this arrangement comes about from the issuing of bonds. These can be issued by a wide range of borrowers, from the government, to government agencies, to public companies. Quite simply, the investor will purchase one of these bonds, and then the issuer will be obliged to pay out set interest at regular intervals to the purchaser or investor. This means that rather than unobligated dividends, the investor can be sure that they’re going to see returns. Each bond will also have a maturity date, at which point the issuer must return the principal (face value of the bond).
What if It Goes Wrong?
Of course, as already mentioned, financial investments are not always entirely secure, and indeed there is always the risk that the bond issuer will not be able to pay out the agreed interest at the set intervals. This would leave the investor out of pocket, and could have serious implications if they are relying on their fixed income. In such a case, the issuer would be in default, and depending on jurisdiction and type of product, there are frameworks to put them into bankruptcy if they do not pay. This contrasts with stocks and shares whereby there are no reprimands if the company does not issue a quarterly dividend for instance.
Who is it Right For?
These kinds of bonds are of course best for those who are looking for a fixed return rather than the potential for major gains or losses, usually those who have retired. The capital outlay is generally large, so this is a major financial decision to make over a longer period. It’s generally a good idea to seek out financial advice before purchasing a bond, as a significant amount of money can be tied up for a long time.
