Fixed investments are an important component of an investor’s portfolio, both while they are building wealth and while they are generating income from their investment portfolio. Some of the primary forms of fixed investments include fixed annuities, individual bonds, bond funds, CDs, and investment certificates and each of them fulfill an important role when developing an investment portfolio.
Fixed Annuities
The two primary forms of fixed annuities that are important to become familiar with are deferred fixed and immediate fixed. A deferred fixed annuity is one in which the investment value contributed into the annuity will grow on a taxed deferred basis over time, upon which a fixed payment stream will be designated at a later date. The withdrawal periods may be designated as 5 years, 10 years or even lifetime. An immediate annuity is a contract in which the investor will contribute an amount, upon which they will gain a fixed payment stream for the designated time frame immediately, unlike the deferred fixed annuity which will begin paying in the future.
Individual Bonds
A bond in its simplest terms is a debt instrument issued to raise capital for a corporation or organization. The bond will have a fixed payment rate, a payment date and a maturity when they are purchased. There are a variety of bond types, including municipal, international, corporate, and mortgage to name a few. Investors often purchase individual bonds as a way to generate current income or to provide stability within their portfolio. CDs are rated by individual agencies based upon their overall risk, making it easier for investors to select the best individual bonds for their investment objectives and risk tolerances.
Bond Funds
Bond funds are professionally managed funds, comprised of individual bond securities. Many investors turn to bond funds for their simplicity and their professional management. Bond funds, similar to individual bonds, can be found in virtually every asset class. This flexibility allows investors to build their ideal portfolio, in alignment with their personal financial goals and objectives.
CDs
A CD is a certificate of deposit, paying a fixed interest rate at its maturity to the owner. CD rates will often vary based upon their length to maturity, their issuers and the current interest rate market. In most cases, the CD rates for longer term CDs will be greater than those of CDs with shorter maturity dates. CDs are most commonly issued by banks and are insured by FDIC.
Investment Certificates of Deposit
In addition to traditional CDs offered by banks, there are also alternative forms of investment certificates offered by investment institutions. These certificates have an annual interest rate tied to things such as the S&P 500 Index, other indexes, or even a conglomeration of CDs that are put into what resembles a mutual fund. Investment certificates are attractive to investors who are interested in a cash investment with liquidity that pays a greater rate of interest or return than a standard CD, checking or savings account.
Related posts:
- Creating Income in Retirement
If you are preparing for retirement, one of the largest adjustments that you will face is that your regular paycheck will stop, causing you to rely on other income sources.... - Mutual Funds: Hedge and Exchanged-Traded Funds
There are numerous kinds of mutual funds that allow investors to receive a secure rate of return with minimal risk. While the funds have various amounts of risk, it still... - An Introduction to CD Laddering
Certificates of Deposit (CDs) have long been considered a popular investment option for conservative investors as well as those who are seeking a current income stream. CDs pay interest at... - Stay Ahead of Inflation with Series I Savings Bonds and Savings Rates
The majority of savings rates are not adjusted for inflation. This means that when inflation rates rise, your interest basically gets eaten by the market. One exception to this rule...
