Fixed Income Investing Backs Many Investors

Fixed Income Investing pic
Fixed Income Investing
Image: investopedia.com

Based in Chicago, banking executive Colin Robertson serves as the managing director of fixed income for Northern Trust Asset Management. Colin Robertson has spent most of his career in finance in Chicago handling clients’ bond accounts.

Bonds are one type of fixed income investment, so named because they return a specified interest rate that serves as income for a designated period of time. They do not undergo the fluctuations in value that stocks typically experience over time.

Among the most common fixed income instruments are U.S. Treasuries, which are backed by the federal government. They are considered to be risk-free, since the government can (in theory) always create more currency with which to pay investors when the bond’s term expires. Treasury bonds pay out in as little as 30 days or as long as 30 years.

In money market accounts, funds from large corporations are added to the mix. They usually mature in less than one year to reduce the impact of interest rate volatility. Money markets are often used to finance corporate payrolls.

Companies with good credit can issue investment-grade corporate bonds. On a semi-annual basis they have a slightly higher yield than treasury bonds of like duration.

High-yield bonds (also known as junk bonds) pay higher returns than conventional bonds. The entities that issue them have credit ratings that are below normal or non-existent. The longest they can hold the principal is a few years, because of holders’ fears the issuers may default over longer maturities.

Certificates of deposit enable banks to raise funds for making loans. Designated for a period of months and years, they provide a low but safe return and are protected by the Federal Deposit Insurance Corporation.

Finally, cities issue municipal bonds, typically for 20-year periods, to raise money for infrastructure improvements and other purposes. One of their strongest selling points is that they are tax exempt.

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The Difference between Stocks and Bonds

bonds and stocks
bonds and stocks

 

An MBA graduate of Northwestern University’s Kellogg School of Management, Colin Robertson is a banking executive with wealth management firm Northern Trust in Chicago, Illinois. In this role, Colin Robertson oversees a staff of nearly 70 employees and provides input on bond investments to both internal partners and clients of the firm.

Though they represent two separate types of securities, bonds and stocks are frequently referred to together. These two kinds of investments are both among the most common choices for individuals looking to build a strong, balanced portfolio, but they provide owners with different sets of benefits and risks.

Bonds are a more stable option for investors because they consistently pay out at a fixed rate, typically twice per year. While bonds help keep a portfolio steady and generate an income, they lack the risk factor that gives stocks the potential to be exponentially profitable. Additionally, they are more likely to be affected by inflation. Conversely, stocks provide an increased potential for high profitably, but create a much stronger likelihood of deficit due to their dependence on market conditions.