Home » Fixed-Income Investments: A Guide to Balancing Risk and Returns in Today’s Market

Fixed-Income Investments: A Guide to Balancing Risk and Returns in Today’s Market

Primary markets have diverse ways in which to reward investors, especially those who are active. In the case of the stock market, it often provides a return when stocks gradually become valuable over time. While investors can also earn from the spot markets, it is not a common way for aging investors whose risk tolerance is higher.

Many other tradable instruments beyond stocks provide investors with a fixed income. The income might be a return of the principal amount plus profit or interest. Government bonds are the most common instruments in which investors receive a fixed income until maturity and are the foundation for those learning the basics of what are fixed-income investments.

Once a bond investment matures, the investor might receive a part or a whole of the money invested.

Most Common Fixed-Income Products

Government-backed securities top the list as one of the most preferred products. Such goods have the backing of the entire economy, which in rare circumstances do collapse, meaning they have a low-risk profile. Beyond instruments issued by the government are fixed-income securities from the private sector.

Fixed-income products are diverse, and most are differentiated by their maturity periods. However, one of the denominators in the products is that they earn interest and some are sold for profit. Profit-centered bonds are bought at a lower rate than the face value and sold for the face value or at a higher price, depending on market dynamics.

Treasury notes are some products to consider in a fixed-income security. The products have a lifetime of about 20 years, while some take up to 30 years to mature. In the end, the investor gets back the full principal amount invested, which complements the annual interest paid in the duration of the investment.

TIPS or inflation-protected securities behave differently than ordinary bond investments in the primary markets. The product protects against inflation risk, providing a sense of relief to the investor. However, in the event of deflation, the issuer of the security also deflates the value of the investment.

Corporate bonds are company backed and are diverse. Their nature provides an investor with options depending on the type of arrangement they prefer. Noteworthy, companies with sound financial health often pay lower returns for the bonds issued. Alternatively, startups and companies having cash flow issues pay more to attract buyers to their risky offers.

Investing and Balancing Risk in the Bond Market

Bond market risk

The bond market is enormous, so investors have plenty of options when seeking to add more products to their portfolios. Like most investments, the fixed-income market is awash with brokers working hard to find credible product buyers.

Having access to many products is one way to take a position in the bond market cheaply. While standard rates exist for a commodity, some brokers are often willing to lower the asking price to beat the competition.

Beyond what brokers can offer, the bond market also comes with risk-lowering opportunities. Indeed, taking a solo attempt into investment has a larger risk profile than entering the market in a mutual fund or a pooled fund backed by financial experts.

Mutual funds are often backed by big investment corporations which have a pool of experts. However, the experts will demand a small fee from the income derived from the investment, so the bondholder might earn less than taking the market head-on.

Some other strategies, like laddering, are sufficient for those seeking constant revenue streams. Such a strategy requires a complete understanding of the bond market. Here is more about laddering and bond mutual funds.

Bond Mutual Funds

bond fund

Mutual funds offer a safer way into the bond market than individual-backed bonds. Their low-risk profile also means their returns are lower than other types of bonds.

However, while the risk is low, there are no guarantees of returns when dealing with these kinds of instruments. They are as risky as any type of investment.

Bond mutual funds have another angle that make them risky to handle. Due to their nature, governments and securities exchanges do not provide any guarantees, so an investor can not recover a part or the total amount of capital invested in them should the markets move contrary to the expectations of the terms of the bond.

While mutual funds do not provide a guarantee in terms of insurance, they have other elements that make them suitable for investment. The funds often have the backing of top professionals that ensure exposure to less risk in the markets.

Pooled funds also provide more earnings to their backers compared to what they would have earned if an investor went solo. The reason for higher returns has to do with the entry point of some lucrative bonds, which often start beyond the financial reach of many ordinary investors.



The strategy works by investing a part or the whole annual interest received from another bond investment. Once the invested money matures, it also goes into another bond–the process repeats itself, creating a sort of ladder. The method functions on the principle that the markets often provide a more lucrative entry point, which active investors can leverage at any time.

Investors can enter this strategy by taking multiple positions in the bond market. Ultimately, the positions taken have different maturity periods, which allow entry into other positions. Laddering strives to make funds available to allow for quick entrance into another winning position when it becomes available.

It is also a strategy to guarantee a stream of income to caution from late payments from one investment or default by a company.

Wealthy investors can use their financial might to have a larger ladder, their returns notwithstanding. However, those constrained by their capital can divide the sum available into smaller units, then going into multiple positions gradually. Once a position returns interest, they can move into other positions. The greater the number of positions taken, the well-diversified an investment is.

Final Remarks

Navigating the markets for the best opportunities needs a lot of experience. While bonds are regarded as low-risk instruments, they can also disappoint in the way a ton of other investment products do. In such a circumstance, an investor can join a mutual fund, which lowers the risk and provides experts for the exercise.