Fixed Income Investments
Fixed-income investments are debt securities issued by governments and companies to raise money to fund daily operations and to help finance large projects. These forms of investments provide investors with a fixed interest rate in exchange for them lending their money, and is paid out over a set period of time. Upon the investment's maturity date, the investor is repaid the principal amount in full in addition to the interest they have received.
Unlike equities, fixed-income investments offer investors with more stability and less risk options for their investments, helping to offset some of their more riskier investments, since they are not tied to the fluctuations of the stock market of short-term interest rates.
Types of Fixed-Income Investments
The most common fixed-income investment opportunities provided by traditional banks and institutions are through government and corporate bonds, CDs and Treasury notes and bills. These fixed-income investments can offer investors a great opportunity to diversify their portfolios and invest in less volatile securities with guaranteed fixed monthly returns over a set period of time, however, the interest rates provided by these investments have long been very low. Despite terms ranging from as short as 3 months all the way up to 30 years, their yield rates start as low as 0.5% with highs of only 3%.
Fixed-income investments such as Treasury bonds are backed by the government and CDs have Federal Deposit Insurance Corporation (FDIC) protection up to $250,000 per individual. On the other hand, Corporate bonds are backed by the financial viability of the underlying company and if the company were to go bankrupt, fixed-income investors are usually paid out before common shareholders. Most corporate bonds are also rated by a credit rating agency, so the investor has an understanding of the risks involved when investing in the bond.
Connect Invest offers a type of corporate fixed-income investment opportunity through short notes. This is short-term fixed-income investments in real estate development projects throughout the country, offering a level of liquidity and flexibility that many other fixed-income investments don’t provide.
Fixed-income investments tend to be less-risky and more stable, but there is always a level of risk associated with any investment. Treasurys and CDs have protection through the government and FDIC, which tends to be the most secure. Corporate debt on the other hand is less secure and it’s important to take into account the corporations credit rating before purchasing their bond. Corporations with credit ratings below BBB are of low quality and are considered to be junk bonds. When a company is struggling financially, the price of its bonds on the secondary market might decline in value and if an investor tries to sell a bond of a struggling company, the bond might sell for less than the face value. The bond could also lose demand and it may become difficult for investors to sell in the open market at a fair price.
With some fixed-income investments the price of the investment could fluctuate over its lifetime, however, the investor will still receive the fixed interest or dividend over the set period of time. If the investor holds the bond until its maturity, the price movements are immaterial since the investor will be paid the face value of the bond upon maturity. However, if the investor sells the bond before its maturity date they could receive the current market price for the bond, which could result in a gain or a loss of investment developing on the underlying corporation, the coupon interest rate and the current market interest rate.
There is also interest rate and inflationary risks associated with bonds. If the market interest rate rises and the rate paid by the bond falls then the investor would lose value in the secondary bond market. Furthermore, if inflation increases then it could eat into the gains of fixed income securities which could lead to a loss for the investor.
Benefits of Fixed-Income Investments
While all investments carry some degree of risk, there are many benefits to fixed-income investing that make it a desirable avenue for portfolio diversification and growth. They offer investors a steady stream of monthly income paid over the set investment period. This provides the investor with liquidity and flexibility for spending, while providing the issuer with much-needed access to capital. The interest payments from fixed-income products can also help investors stabilize the risk-return in their investment portfolio.
Fixed-income investments tend to be more stable and carry less risk, which can help many investors stabilize the risk-return in their overall investment portfolio. Higher risk, volatile investments can fluctuate to result in large gains or losses, but fixed-income investments can help to partly offset any losses that may be incurred with investments in higher risk investments by providing steady monthly interest income to investors throughout the lifecycle period. While the value of some fixed-income investments can fluctuate, the monthly interest payments will always remain steady throughout the investment period.
Connect Invest Fixed-Income Investments
All of Connect Invest’s product offerings are fixed-income investments and are provided through real estate short notes. These are short-term investments that help to fund real estate development projects throughout the country. The investments fund the projects at their various phases from acquisition, development and construction. The investments are tailored to the investor’s risk tolerance, amount of investment and length of investment.
There are three investment periods to choose from with a fixed-rate interest that corresponds to each period. A 6 month investment period with an annual interest rate of 5.5%, a 12 month investment period yielding an annual rate of 7.25%, and a 24 month investment period with an annual interest rate of 9.0%. Upon maturity of the investment term, along with the interest payments paid out, you will be returned your principal amount in full. If you would like to learn more about Connect Invest’s fixed-income investment opportunities please visit www.connectinvest.com.