What Are Fixed Income Assets?
Fixed-income assets are property that generates some kind of payment regularly, as opposed to an asset that only generates income when it is sold. Fixed-income assets can be bonds (which pay interest), fixed-income mutual funds (which pay monthly dividends), or any other security that pays interest or dividends.
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Asset
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An asset is anything that an individual possesses that could be sold for a profit. Assets include physical property like houses and cars, as well as stamp collections, family heirlooms and furniture. More ephemeral financial property such as stocks, bonds, patent titles and any money owed to you are also considered assets. The opposite of an asset is a liability (credit card debt, mortgages, car loans and any other money you owe to someone else).
Fixed-Income Assets
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Fixed-income assets are financial products that pay interest, dividends or any other kind of payment that does not require you to sell the asset. Fixed-income assets are products such as certificates of deposit (which pay a guaranteed interest rate for a specified amount of time), government and corporate bonds (which pay interest), fixed-income mutual funds (which pay monthly dividends), preferred stock (which pays dividends) and Treasury inflation-protected securities (which pay the initial amount plus annual inflation).
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Bonds
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Bonds are by far the most common type of fixed income asset. Bonds are a note of debt from a government entity or business. When you buy a bond, you pay a certain amount that the entity promises to pay back, along with annual or semi-annual interest. The U.S. Treasury issues bonds, which are possibly the safest investments on the market. State and local governments also issue bonds, which are tax-exempt, usually to raise money for infrastructure improvements. Businesses issue bonds as well as a way to raise money to grow the business; these bonds tend to be riskier than government bonds and thus offer higher interest rates.
Risk
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All investments involve a degree of risk. Generally, the higher the risk in a given investment, the higher the potential payoff. Investors manage risk by doing something called diversification, which means spreading money around into a lot of different businesses, industries and financial products. Investing in fixed-income assets is generally considered a low-risk investment (especially fixed-income asset funds), because you are practically guaranteed some money through regular payments and because bonds (excepting junk bonds, which are bonds offered by weak companies) are some of the safest financial products.
Other Securities
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Fixed-income assets are just one category in a dizzying array of financial products on the market. Other common types of products (also known as securities, which are defined as instruments representing financial value) are common stocks, which are stocks that do not pay dividends, derivatives contracts, notes, bills of exchange and mortgages.
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References
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