Selecting Fixed Income (2024)

Learn how to decide which fixed income investments best fit your needs.

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Selecting Fixed Income (1)

Find the bond that's right for you

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Many investors have told me they want to invest in bonds, but aren't sure how to do it, or which bonds might be best for them.

To a large extent, it depends on your goals, your risk tolerance, your timeline, and how active you want to be in managing your portfolio.

Let's start with what kind of bonds you should consider. Key questions here are: what's your primary goal, how long is your investing timeframe, and how much risk do you want to take?

If you expect to need the money within four years, or want to take the least amount of risk, your primary goal is likely to be capital preservation. Investments that can be appropriate include bank CDs or short-term bond funds.

If your investing timeline is longer, and you're willing to take more risk in order to potentially earn higher yields, you might consider longer-term Treasury bonds or investment-grade corporate or municipal bonds.

And if your primary goal is income, and you're willing to take the greatest amount of risk, think about emerging market bonds or long-term Treasuries.

Once you've decided what to invest in, the next step is how to do it.

A first step here is how much you have to invest in fixed income securities.

For example, we recommend at least $100,000 if you intend to invest in individual bonds, so you can buy enough bonds from different issuers to create an adequately diversified portfolio.

Many separately managed accounts have minimum investment levels of about $250,000

The other question is how actively you want to manage your portfolio. If you're an experienced fixed income investor and want to do it yourself, individual bonds are an option.

If you'd rather leave the management to a professional, consider mutual funds or a separately managed account.

Important Disclosures:
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

Diversification strategies do not ensure a profit and do not protect against losses in declining markets.

Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed-income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower-rated securities are subject to greater credit risk, default risk, and liquidity risk.

Investing involves risk, including loss of principal. International investments involve additional risks, which include differences in financial accounting standards, currency fluctuations, geopolitical risk, foreign taxes and regulations, and the potential for illiquid markets. Investing in emerging markets may accentuate these risks.

Certificates of deposit are issued by various FDIC-insured institutions, and are subject to change and system access. Unlike mutual funds, certificates of deposit offer a fixed rate of return and are FDIC-insured. There may be costs associated with early redemption and possible market value adjustment.

Tax-exempt bonds are not necessarily suitable for all investors. Information related to a security's tax-exempt status (federal and in-state) is obtained from third parties, and Schwab does not guarantee its accuracy. Tax-exempt income may be subject to the alternative minimum tax. Capital appreciation from bond funds and discounted bonds may be subject to state or local taxes. Capital gains are not exempt from federal income tax.

Preferred securities are often callable, meaning the issuing company may redeem the security at a certain price after a certain date. Such call features may affect yield. Preferred securities generally have lower credit ratings and a lower claim to assets than the issuer's individual bonds. Like bonds, prices of preferred securities tend to move inversely with interest rates, so they are subject to increased loss of principal during periods of rising interest rates. Investment value will fluctuate, and preferred securities, when sold before maturity, may be worth more or less than original cost. Preferred securities are subject to various other risks including changes in interest rates and credit quality, default risks, market valuations, liquidity, prepayments, early redemption, deferral risk, corporate events, tax ramifications, and other factors.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

Charles Schwab & Co., Inc. and Charles Schwab Bank are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Brokerage products are offered by Charles Schwab & Co., Inc., Member SIPC. Deposit and lending products and services are offered by Charles Schwab Bank, Member FDIC and an Equal Housing Lender.

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Selecting Fixed Income (6)

Define your goals.

Define your goals

Whether you're looking to save for a near-term expense, add stability to your portfolio, or create a revenue stream, there are fixed income products for you to consider.

Define your goals

  • Financial goal
  • Fixed income products to consider
  • Financial goal

    I want to protect my investment

    >

  • Fixed income products to consider

    • Short-term CDs (Certificates of Deposit)
    • Short-term Treasuries
    • Short-term investment-grade municipal or corporate bonds
    • Short-term bond funds

    >

    • Financial goal

      I want to add income and balance to my portfolio

      >

    • Fixed income products to consider

      • Short- and intermediate-termTreasuries
      • Short- and intermediate-term agency bonds
      • Short- and intermediate-term international developed-market bonds
      • Short- and intermediate-term investment-grade corporate or municipal bonds
      • Short-term to intermediate-term bond funds
      • Agency mortgage-backed securities

      >

      • Financial goal

        I want to generate more interest income

        >

      • Fixed income products to consider

        • Long-term Treasury or corporate or municipal bonds
        • Emerging market bonds or bond funds
        • Preferred securities or preferred securities funds

        >

    Selecting Fixed Income (7)

    Select an investment allocation strategy.

    Select an investment allocation strategy

    Create a mix of fixed income investments that balance your portfolio to help meet your goals. These five sample asset allocation plans show how fixed income can be adjusted in youroverall portfolio.

    • Conservative

      Selecting Fixed Income (8)

      For investors who seek current income and stability, and are less concerned about growth.

    • Moderately conservative

      Selecting Fixed Income (9)

      For investors who seek current income and stability, with modest potential for increase in the value of their investments.

    • Moderate

      Selecting Fixed Income (10)

      For long-term investors who don't need current income and want some growth potential. Likely to have some fluctuations in value, but less volatility than the overall equity market.

    • Moderately aggressive

      Selecting Fixed Income (11)

      For long-term investors who want good growth potential and don't need current income. Likely to have a fair amount of volatility, but not as much as a portfolio invested exclusively in equities.

    • Aggressive

      Selecting Fixed Income (12)

      For long-term investors who want high growth potential and don't need current income. May have substantial year-to-year volatility in value in exchange for potentially high long-term returns.

    Want help determining an appropriate allocation type for you?

    • Want help determining an appropriate allocation type for you?

      Use ourInteractive Profile Questionnaireto find a suitable investment strategy.

    Selecting Fixed Income (13)

    Determine your time frame and the level of risk you're comfortable with.

    Maturity timeframe

    Traditionally, longer-term bonds produce higher yields but also have higher interest rate risk—the risk that the value of a bond will fall if interest rates rise. Thus, your time frame may be one factor in determining the amount of interest rate risk you're willing to take on.

    Maturity timeframe

    • Low interest rate risk
    • Medium interest rate risk
    • High interest rate risk
    • Maturity timeframe

      >

    • Low interest rate risk

      0 - 4 years average maturity

      >

    • Medium interest rate risk

      4 - 10 years average maturity

      >

    • High interest rate risk

      10+ years average maturity

      >

Credit risk

It's also important to consider credit risk—the chance that the issuer of a bond will not be able to repay its debt obligations. With riskier lenders, the return may be higher, but the odds of an investor losing their principal rise.

Credit risk

  • Low credit risk
  • Medium credit risk
  • High credit risk
  • Fixed income products

    >

  • Low credit risk

    CDs, Treasuries, agency bonds, agency mortgage-backed securities

    >

  • Medium credit risk

    Investment-grade corporate or municipal bonds, international developed market bonds

    >

  • High credit risk

    Preferred securities, emerging market debt, high-yield bonds, high-yield municipal bonds, bank loans

    >

Selecting Fixed Income (14)

Evaluate and get invested.

Whether you're a self-directed investor or prefer professional management, Schwab has account options for you.

  • Do you prefer managing your own investments?

    Just open an account and start using our easy investment tools.

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Selecting Fixed Income (2024)

FAQs

Selecting Fixed Income? ›

Advantages of Fixed Income

Fixed-income investments offer investors a steady stream of income over the life of the bond or debt instrument while simultaneously offering the issuer much-needed access to capital or money.

Find Out More
Why choose fixed income? ›

Advantages of Fixed Income

Fixed-income investments offer investors a steady stream of income over the life of the bond or debt instrument while simultaneously offering the issuer much-needed access to capital or money.

Discover More
What is the best fixed income investment? ›

Best fixed-income investment vehicles
  • Bond funds. ...
  • Municipal bonds. ...
  • High-yield bonds. ...
  • Money market fund. ...
  • Preferred stock. ...
  • Corporate bonds. ...
  • Certificates of deposit. ...
  • Treasury securities.
More items...
Mar 31, 2024

Continue Reading
What are the pros and cons of fixed income? ›

The pros and cons of fixed-income investing
ProsCons
Provide investors with stable, predictable returnsTypically generate lower potential returns than stocks
Experience much less volatility than stocksCome with interest-rate risk, as bond prices fall when market interest rates rise
1 more row
Apr 9, 2024

Tell Me More
How do you evaluate fixed income? ›

A fixed-income bond can be valued using a market discount rate, a series of spot rates, or a series of forward rates. A bond yield-to-maturity can be separated into a benchmark and a spread.

Get More Info
What is the disadvantage of a fixed income investment? ›

Disadvantages. Fixed-income securities commonly have low returns and slow capital appreciation or price increases. This is the trade-off for lower risk. Their prices tend to decrease slower as well.

Read More
Why is fixed income better than equity? ›

Fixed-income securities and equities are popular investments with millions of investors in the United States. Fixed-income investments pay regular interest and tend to have less risk, making them favorable to risk-averse investors. Equities, on the other hand, can have high returns, but also tend to be riskier.

Show Me More
Is it good to invest in fixed income now? ›

In current market circumstances, with higher bond yields, fixed income investments have become an attractive asset class again from a risk-return perspective. Apart from the attractive yield, bonds also offer resilience for adverse market developments in risk assets like equities.

See More
What is the best place to live on a fixed income? ›

Alaska is an income-tax and sales-tax-free state, making it one of the best places to retire on a fixed income.

Read On
Can I retire on 500000? ›

Key Takeaways. It may be possible to retire at 45 years of age, but it depends on a variety of factors. If you have $500,000 in savings, then according to the 4% rule, you will have access to roughly $20,000 per year for 30 years. Retiring early will affect the amount of your Social Security benefit.

Keep Reading

Does fixed income do well in recession? ›

Interest rates tend to begin to decline three months ahead of recessions and reach a cycle low about five months into recessions. During economic downturns, fixed income has been shown to provide diversification benefits and reduce the volatility of portfolios that include risk assets such as equities.

Read More
Why do fixed income funds lose value? ›

What causes bond prices to fall? Bond prices move in inverse fashion to interest rates, reflecting an important bond investing consideration known as interest rate risk. If bond yields decline, the value of bonds already on the market move higher. If bond yields rise, existing bonds lose value.

Get More Info Here
Why is fixed income hard? ›

In times of economic instability—such as soaring inflation—living on a fixed income becomes especially challenging for people. As expenses rise, their ability to pay for them stays the same.

Discover More
What is benchmark in fixed-income? ›

Benchmark is a standard used for comparison. In financial markets, the indexes are the benchmarks against which the performance of individual securities is compared. Thus, a benchmark is a standard against which one can measure the performance of a security, mutual fund, or investment manager.

See Details
What is the best fixed-income ETF? ›

The Best Bond ETFs for 2024's Economy
TickerFund1-Mo Return
BLVVanguard Long-Term Bond ETF9.98%
ZROZPIMCO 25+ Year Zero Coupon US Treasury ETF16.02%
VCITVanguard Intermediate-Term Corporate Bond ETF5.95%
IEFiShares 7-10 Year Treasury Bond ETF4.55%
6 more rows

Read The Full Story
How do you live on fixed-income? ›

7 Smart Ways to Live Well on a Fixed Income
  1. Live below your means. This maxim has never been more important than right now. ...
  2. Micromanage your budget. ...
  3. Avoid adding new debt. ...
  4. Consider moving for tax savings. ...
  5. Downsize to a smaller place. ...
  6. Have fun for free. ...
  7. Earn extra money on the side.

Know More
How to get 10% return on investment? ›

Investments That Can Potentially Return 10% or More
  1. Stocks.
  2. Real Estate.
  3. Private Credit.
  4. Junk Bonds.
  5. Index Funds.
  6. Buying a Business.
  7. High-End Art or Other Collectables.
Sep 17, 2023

Tell Me More
What is the best investment with highest return? ›

11 best investments right now
  • High-yield savings accounts.
  • Certificates of deposit (CDs)
  • Bonds.
  • Money market funds.
  • Mutual funds.
  • Index Funds.
  • Exchange-traded funds.
  • Stocks.
More items...
Mar 19, 2024

Learn More Now
Where can I earn 12% interest? ›

Here are five easy-to-understand investment options that have the potential to generate a steady 12% returns on investment:
  • Stock Market (Dividend Stocks) ...
  • Real Estate Investment Trusts (REITs) ...
  • P2P Investing Platforms. ...
  • High-Yield Bonds. ...
  • Rental Property Investment. ...
  • Way Forward.
Jul 20, 2023

Read On
What is the safest investment with the best return? ›

Here are the best low-risk investments in April 2024:
  • High-yield savings accounts.
  • Money market funds.
  • Short-term certificates of deposit.
  • Series I savings bonds.
  • Treasury bills, notes, bonds and TIPS.
  • Corporate bonds.
  • Dividend-paying stocks.
  • Preferred stocks.
More items...
Apr 1, 2024

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