Investment Products to Diversify Your Portfolio
Fixed income is a flexible and diverse asset class that could have a place in your portfolio, whether your investment objective is income, capital preservation or growth.
Preparing Your Fixed Income Portfolio for Rising
Learn about strategies that may mitigate the risk of rising interest rates to your portfolio, especially your fixed income holdings. Click here for the full report.
Fixed Income Securities: An Overview
Fixed income securities, or bonds, include the debt obligations of governments, agencies, municipalities and corporations. The borrower (issuer) promises to pay the lender (investor) interest at a specified rate over the life of the bond (maturities typically range from one to 30 years) and repay face value at maturity (mortgage-backed securities are an exception).
Characteristics of Fixed Income Securities
- Regular interest income—Interest payments can be monthly, quarterly or semiannually, depending on the security type.
- Capital preservation—The borrower promises to repay the face value when the securities mature, and some will pledge collateral to support interest and principal payments.
- Diversification—Bonds can be an integral part of a diversified investment portfolio that includes other asset classes such as stocks and alternative investments.1
- Liquidity—Liquidity is a measure of how easily a security can be sold in a secondary market, and fixed income securities can range from highly liquid to relatively illiquid.
- Tax exemptions—Interest income from securities issued by government entities may be fully or partially exempt from local, state or federal income taxes.
Choose From These Fixed Income Securities
Your Financial Advisor can help you select from a wide range of fixed income securities that may help you reach your investment objectives.
- Treasury, agency/supranational, agency/government sponsored enterprise and mortgage-backed securities; certificates of deposit (CDs) and short term debt
- Corporate, high yield, convertible, foreign denominated and emerging market bonds; preferred securities; taxable municipal bonds
Tax Exempt Bonds
- Municipal bonds: general obligation, revenue, prerefunded, escrowed to maturity, high yield municipal and nontraditional bonds2
Consider the Risks
Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally the longer a bond's maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer. Bonds are subject to the credit risk of the issuer. This is the risk that the issuer might be unable to make interest and/or principal payments on a timely basis. Bonds are also subject to reinvestment risk, which is the risk that principal and/or interest payments from a given investment may be reinvested at a lower interest rate.
Find out more about these fixed income products: Corporate Bonds, Municipal Bonds and Treasury and Agency Securities.
1 Diversification does not guarantee a profit or protect against a loss in a declining financial market.
2 Interest on municipal bonds is generally federal income tax exempt; however, some municipal bonds may be subject to the alternative minimum tax (AMT). Typically, state tax exemption applies if securities are issued within one's state of residence and, if applicable, local tax exemption applies if securities are issued within one's city of residence. The tax exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.