Carty & Company, Inc.
Fixed Income Securities
Fixed Income Securities are an asset class wherein the government or a company borrows money from investors to fill the gap between their spending and their normal income. Institutions issue fixed income securities because they’re predictable and low risk for both them and their investors.
Fixed income securities are an excellent way to diversify your financial portfolio. They’re less volatile than equities. Finally, fixed income securities are easily traded making them a popular choice for investors.
Types of Fixed Income Securities
There are several types of fixed income securities to choose from.
At its very base, a fixed income security is essentially a bond. It’s a loan made by an investor to a company or the government. One might think of it as an I.O.U wherein the issuer promises to repay the face value of the bond based on a fixed maturity date. Additionally, the issuer also pays regular interest on the bond to the investor. Companies and governments use bonds as a quick means to generate revenue for one reason or another.
Treasury fixed income securities are usually considered to be safe investments due to the fact that they’re backed by the government. Treasuries are called such because they are issued by the United States Treasury. Commonly called the “risk-free” investment, although no investment is without risks. There are three types of treasuries.
A treasury note (also called a T-Note) is a fixed income security with a maturity of 1-10 years. Used to fund the government’s debt, interest on a treasury note is paid to an investor twice a year. The note will be paid back in full at the predetermined maturity date. While these kinds of securities are a relatively safe investment, treasury notes are prone to inflation and often have a lower interest rate than other investment types.
Available in increments of $100, treasury bonds are a fixed income security with a maturity date of 10 to 30 years. Like treasury notes, T-bonds are tax-free at the state level. Treasury bonds are sold in an auction that determines their value.
A treasury bill is a fixed security income, issued by the U.S. government, with a maturity date of a year or less. This type of asset doesn’t pay out interest but is sold below face value, generating profit once it reaches maturity. While these are good for conservative investors, they may not be the best option for long-term financial growth.
Unlike treasuries, a municipal bond is a fixed income security that is issued by a local government. Also called munis, these assets are tax-free on the federal level, and may sometimes be exempt from state taxes as well. Furthermore, the interest is also tax-free. With a set maturity date, municipal bonds are a good investment for some individuals based on their current tax bracket.
Certificate of Deposit
A certificate of deposit, also known as a CD, is a product provided by a bank or other financial institution. Banks provide the investor with a premium interest rate on your money, provided that you agree not to touch that money for a given period of time. The longer you agree to leave your money alone, the better your interest rate is likely to be. When it comes to utilizing this type of asset, it’s important that investors shop around to determine which bank will give them the best interest rate.
Looking For More Information? We Can Help.
Carty & Company has been assisting clients across the U.S. since 1970. For over 15 years, our financial experts have been providing the latest industry insights, helping individuals make informed decisions about their financial futures. If you have more questions about fixed income securities, reach out now to learn how we can help.