Fixed income securities represent the debt offered by an issuing entity, (for example: a bank or corporation).  Governments, corporations, and lending institutions, finance their expansions by issuing fixed income products.  Investors can purchase these products which allows them to essentially lend to the issuers, making you the “creditor” of the transaction, not part owner as you would be when you purchase stock in a company.  Fixed income products are certainly not as glamourous as trading in the stock market, but don’t underestimate this market.  The American bond market has always been much larger than the equity market with $600 billion invested into global bonds in 2024 (Reuters.com).   This market is also said to be at least 10 to 12 times the size of the equity markets with an American value of $5+ Trillion in 2024.

There are many fixed income products to choose from with varying degrees of risk and rates of returns.  Here’s what the average American can consider:

1. Canadian or US Treasury Bills/Notes, Commercial Papers (CPPP), Term Deposits
2. Marketable Bonds (non-callable Federal Government Bonds)
3. Real Return Bonds (Government Bonds-inflation adjusted)
4. Corporate Bonds and Corporate Notes (choose AAA or AA ratings for long-term bonds)
5. State Government Bonds (only available for residents of specific state)
6. Mortgage Bonds and Collateral Trust Bonds (choose senior securities to lower risk, first charge)
7. Strip Bonds (zero-coupon bonds – purchased at a discount and mature at par)
8. Foreign and Euro-bonds (watch for currency exchange and fees)
9. Preferred securities/debentures, (long-term 25-99 years, traded in the market)

*Tax efficient alternative to regular bonds due to dividend credit.

Christine’s Tip:

Trading in bonds seems to be less enticing to the average investor and it surprises me how this market is often overlooked.  Bonds seem to get a lot of bad press, and they lack the media sensation of stock spikes in the market. 

Regardless of what fixed income product you choose, why not try a laddered portfolio plan to provide more liquidity, diversification, and a reduction in interest rate risks.  Laddered investment strategies are not new and are often used with strip bonds.  With this type of strategy, you would divide your investment into one-, three-, five-, and seven-year terms.  As each portion matures, it can be reinvested or redeemed as needed.  To ensure you always have access to the investment and have more control over the locked-in rates you may want to opt for an annual maturation.