Fixed Income Investing
Fixed income investments are designed to generate a specific level of interest income, while also providing diversification, capital preservation, and potential tax exemptions.
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Understanding fixed income investments
Fixed income investments are designed to generate income and help provide capital preservation. If you’re looking for potential tax benefits and want to diversify your portfolio, high-quality fixed income investments could be an option for you.
Bonds, such as U.S. Treasuries and corporate or municipal bonds, are traditional types of fixed income investments. Investors may also consider mutual funds and ETFs that hold fixed income investments.
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Why invest in fixed income?
Whether your goal is to diversify your investments, save for the future, receive dependable income, preserve principal, or help minimize taxes, fixed income investments could be a way to reach your goals.
The Benefits and Risks of Fixed Income Investing
- Benefits
- Risks
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BenefitsFixed income investments generally carry lower risk than stocks. They also function well as a way to generate income or value from your investments on a consistent basis.
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RisksJust because fixed income funds usually are less risky options doesn't mean there is no risk involved. As with stocks, your fixed income investment could be affected by external factors such as market conditions, inflation, or interest rates.
Think about your fixed income objectives.
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Generate IncomeUse fixed income securities to provide a regular, predictable stream of revenue.
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Diversify your portfolioHelp smooth out the highs and lows in a stock portfolio with fixed income securities.
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Protect your investmentsAdd stability to your portfolio with high-quality fixed income investments, like Treasuries, CDs, or other highly rated bonds.
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Create tax benefitsSome fixed income securities, like municipal bonds, generally have preferential tax treatment where Tooltip may be exempt from federal and state income taxes.
Consider your investing style:
Get professional management of your fixed income.
Manage your own fixed income investments.
Bond mutual funds & bond ETFs
These are professionally managed investment products made up of a diversified mix of underlying securities, often with low investment minimums.
Certificates of deposit (CDs)
CDs are federally insured1 bank deposits that pay a stated amount of interest for a specified period and promise to return your money on a specific date. Certain conditions must be satisfied for FDIC insurance coverage to apply. Charles Schwab & Co., Inc. is not an FDIC-insured bank and deposit insurance covers the failure of an insured bank. Please visit the Schwab CD OneSource® page for a list of insured financial institutions that offer CDs through Schwab.
Individual bonds
Bonds typically pay a set schedule of fixed interest payments and promise to return your money on a specific maturity date.
U.S. Treasury Bills
Considering U.S. Treasury Bills as another option for your investment cash?
Talk to a Schwab Fixed Income Specialist.
Our specialists offer objective, non-commissioned guidance on a wide range of fixed income products and strategies including ladders, bullets, barbells, and more. You can expect personalized service on topics such as:
- Help with choosing from a wide variety of investment options
- Suggestions for adjusting to changing market conditions
- Assistance with using our online trading features
Call 877-903-8069
Make the shift from saving to spending.
As you near retirement, you need to be sure you've built an income strategy that'll cover the future of your dreams. See how Schwab can help you maximize your assets and build a plan for what's to come.
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Common questions
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There are many different types of fixed income investments, with each type offering different risk and return characteristics. U.S. Treasuries are the most common type of fixed income investment and are generally considered to have the highest credit quality as they are backed by the full faith and credit of the U.S. government. Other examples of fixed income investments include certificates of deposit (CDs), municipal bonds, and corporate bonds.
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Investors who prefer to invest through funds can consider either bond mutual funds or bond exchange-traded funds (ETFs). Bond mutual funds and ETFs can offer professionally managed, diversified investments for investors, for a fee. Investors can purchase a bond mutual fund or ETF just like they would place an order for most other mutual funds or ETFs.
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The safety of a bond fund depends on the risks of its underlying holdings. There are two primary risks with fixed income investments, credit risk and interest rate risk. Credit risk is the risk that the issuer won't pay the investor back in a timely fashion and interest rate risk is the risk that the value of the fixed income investment will fall if interest rates rise. A bond fund that mainly invests in highly rated investments, like U.S. government securities or investment grade corporate or municipal bonds, would generally be considered to have low credit risk, but the value of the fund may still fluctuate as interest rates fluctuate. A fund with a shorter duration, a measure of interest rate risk, will fluctuate less in price than one with a longer duration, all else equal.
Unlike individual bonds, most bond funds don't have a maturity date or a predictable value at maturity. Individual bonds can help investors plan for future expenses given their stated par value and maturity dates, but bond funds don't offer that same benefit.
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