Best Investments for People on a Fixed Income

Investors of all stages can invest in fixed income funds with Interactive Brokers.

Having a fixed income doesn’t need to prevent you from attempting to grow your income by investing a portion of your assets. Investing entails a range of investment strategies of varying levels of risk. Consider your level of risk tolerance and put your money in less-risky types of investments, including government bonds, high-quality corporate bonds, bond funds, high-yield money market funds and Certificates of Deposit (CDs). If you decide to invest a portion of your assets in more volatile options such as stocks, keep in mind the potential risk of losing principal. Investment tools and platforms are available to offer a wide selection of investment and savings options. Here is Benzinga's list of the best investment for fixed income investors.

What are Fixed Income Funds?

Fixed Income Funds are investments that typically aim to generate income by investing in a variety of fixed-income securities such as bonds, notes, CDs, money market instruments, and other debt instruments. These funds are designed to provide investors with a steady stream of income while preserving capital. They are generally considered low-risk investments as they offer stable returns over time.

Fixed income funds can be further divided into categories such as government bonds, corporate bonds, and high-yield bonds. Government bonds are generally considered the safest debt security of all fixed-income investments while offering lower returns than corporate or high-yield bonds. Corporate bonds offer higher yields but also carry greater credit risk than government bonds. High yield bonds have the highest potential for returns, but also pose a greater risk of default or loss of principal.

The Best Investments for People on a Fixed Income

When you live on a fixed income, perhaps because you’ve retired or are disabled, you live with the awareness that the amount of money coming in each month is not going to increase, and you aren’t going to be able to add substantially to those funds you’ve saved. More than other people who can work for pay or get a second job to add money to their household, you want to avoid losing your “principal” — the fixed monthly amount you live on plus the money that you accumulated prior to stopping work.

It’s no coincidence that the term “fixed income investments” refers to the kinds of savings tools that seek to minimize the potential loss of principal because when you live on a fixed income, you need to have that kind of investing mindset. Bonds and high-yield money market funds are two types of fixed income investments that could work for you.

Bonds

Bonds are viewed as a way that people can loan governments or corporations money. In return, the bondholder receives timely and dependable interest. Bond funds can be ideal for a fixed-income investment because they are largely dependable and consistent. However, different types of bonds offer varied levels of risk. For example, higher-yield bonds such as corporate bonds can offer much greater yields than Treasury bonds, but they carry a higher risk of default. In general, bonds are closely tied to interest rates, so it’s important to keep an eye on how interest rates are moving to ensure that potential losses don’t occur with rate changes.

The bond market can be one of the best fixed-income investments available that provide a larger amount of stability over an extended time. Bonds can vary in price and can easily be purchased on a fixed or more flexible budget. Keep in mind that different types of bonds range from government to corporate to high-yield to municipal. When deciding where to invest, it’s important to consider the ideal type of bond for your level of risk tolerance and budget.

High Yield Money Market or Savings Accounts

Online banks like Ally Bank and Synchrony Bank, among many others, offer high-yield savings accounts that pay slightly higher interest rates than regular savings accounts. These accounts don’t offer the returns that more aggressive and risky investments can, but they do offer stability and small returns. Overall, a high-yield savings account provides small but steady returns that help keep your principal safe while also adding interest along the way.

Investment Tools for People on a Fixed Income

For people on a fixed income who want to invest in the stock market, today’s online brokers let you participate with no or low trading fees and plenty of education to guide your choices. Be aware that when you buy a stock or exchange-traded fund (ETF), you can’t know for sure that you won’t lose money. The initial amount you use to buy a stock — the principal — is subjected to different forces than money in a savings account, money market account or CD. Stocks are shares of a company, and if the valuation of the company decreases, the stock price could drop with it. If you end up selling the stock or if the company goes bankrupt, you lock in your losses and some or all of your principal is gone. Losses hurt if you’re a working person, but when you are on a fixed income, that money is gone forever and can devastate your financial future. 

If you want to participate in the stock market, you may incur slightly less risk by buying a diversified portfolio or ETF of blue chip stocks. Blue chip stocks earned their name after the term in poker because it signifies the most expensive pieces. Blue chip stocks are considered safer than other stocks because they are often established leaders in their fields. However, blue chip stocks tend to be expensive — and they still carry with them the risk of losing your principal.

Where to Invest in Fixed Income Markets

Consider these online brokers if you want to take part in the stock market.

1.E*TRADE

E*TRADE, owned by Morgan Stanley (NYSE: MS), offers a strong selection of investment options as well as research tools. The mobile application allows investors to trade and learn about the market from the convenience of a cell phone. It’s a good option for both beginning traders and curious investors because it offers access to an extensive amount of educational resources. E*TRADE even requires no minimum balance and allows certain trades to happen commission-free. Although no minimum balance is required, money must be deposited within the span of 30 days to keep the account open.

2. TD Ameritrade

TD Ameritrade, owned by Charles Schwab Corp. (NYSE: SCHW), attracts both beginners and more experienced traders with commission-free stock and ETF purchases. The large selection of investment options combined with an extensive amount of available research helps empower investors before making a fixed income security purchase or sale. Opening an account is free.

3. Robinhood

Robinhood Markets Inc. (NASDAQ: HOOD) does not require a minimum investment and allows users to trade stocks and ETFs. Currently, it offers a free first stock when you open an account under the required conditions. Robinhood offers a mobile application that can easily execute certain trades with a comprehensive and easy-to-understand configuration. Robinhood does not offer investments such as individual bonds, but it does offer bond funds.

Why Invest When You Have a Fixed Income?

Investing when you have a fixed income can help in the long run. It’s beneficial because small investments can lead to a sizable return down the road. Safer fixed-income investments such as bonds are one way to accumulate steady and predictable growth while having a better chance at protecting your principal. Additionally, investing early and often can help you to grow your net worth and help you to care for your family while you adventure through different stages of life. If possible, consult a financial advisor about your options.

Grow Your Net Worth

Investing helps you to grow your worth over time. Currently, interest rates are low and that means that traditionally safer options such as bonds and mutual funds will make small but relatively predictable returns. Depending on your interest in diversifying your portfolio and risk management, bolder options such as stocks can potentially bolster your net worth down the line. 

Prepare for the Future

The future offers a multitude of unknown variables, but investing helps to take the guesswork out of your financial position. It’s rarely too early or too late to start investing. Investing on a fixed income can stem from small efforts such as buying one stock a week and can cost about the same as a cup of coffee. Preparing for the future doesn’t necessarily mean mapping out a detailed life plan and sticking to it; sometimes it can look like small and consistent investments. 

Leave Your Family a Better Inheritance

Thinking about retirement and what you will leave behind for your family doesn’t need to be a constant weight on your shoulders. Take proactive and informed steps. Growth on a fixed income can take time and often requires making informed financial choices. If possible, consult a financial advisor about how to best leave your family an inheritance. 

Invest in a Business

If you’ve always wanted to start a business but preferred a more hands-off approach, then this might be an ideal step for you. Investing in a business can be an excellent way to use your fixed income to grow your worth. Investing in a business carries risk, but it can offer large rewards.

Invest in Fixed Income Funds Today

When it comes to investing, people on a fixed income need to be especially careful. Despite having less disposable income to use for investments, there are still plenty of options available that can help them grow their money over time.

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