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What is fixed income investing?

Fixed income is an investment approach focused on preservation of capital and income. It typically includes investments like government and corporate bonds, CDs and money market funds. Fixed income can offer a steady stream of income with less risk than stocks.

What are the potential benefits of fixed income?

Depending on your financial goals, fixed income investments can offer many potential benefits, including:

  1. Diversification from stock market risk
    Fixed income is broadly understood to carry lower risk than stocks. This is because fixed income assets are generally less sensitive to macroeconomic risks, such as economic downturns and geopolitical events.

    If you’re seeking to grow your wealth investments over time to save for retirement or other long-term goals, you probably hold a significant amount of stocks in your portfolio. But by allocating a portion of your portfolio to fixed income investments, you can potentially help offset losses when stock markets swing.
  2. Capital preservation
    Capital preservation means protecting the absolute value of your investment via assets that have a stated objective of return of principal. Investors who are closer to retirement may rely on their investments to provide income. Because fixed income typically carries less risk, these assets can be a good choice for investors who have less time to recoup losses. However, you should be mindful of inflation risk, which can cause your investments to lose value over time.
  3. Income generation
    Fixed income investments can help you generate a steady source of income. Investors receive a fixed amount of income at regular intervals in the form of coupon payments on their bond holdings. In the case of many, municipal bonds, the income is exempt from taxes.
  4. Total return
    Some fixed income assets offer the potential to generate attractive returns. Investors can seek higher returns by assuming more credit risk or interest rate risk.

What are the risks associated with fixed income?

There are four major risks associated with fixed income:

  1. Interest rate risk
    When interest rates rise, bond prices fall, meaning the bonds you hold lose value. Interest rate movements are the major cause of price volatility in bond markets.
  2. Inflation risk
    Inflation is another source of risk for bond investors. Bonds provide a fixed amount of income at regular intervals. But if the rate of inflation outpaces this fixed amount of income, the investor loses purchasing power.
  3. Credit risk
    If you invest in corporate bonds, you take on credit risk in addition to interest rate risk. Credit risk (also known as business risk or financial risk) is the possibility that an issuer could default on its debt obligation. If this happens, the investor may not receive the full value of their principal investment.
  4. Liquidity risk
    Liquidity risk is the chance that an investor might want to sell a fixed income asset, but they’re unable to find a buyer.

You can manage these risks by diversifying investments within your fixed income portfolio.

How can I invest in fixed income?

It's possible for an individual investor to buy a single bond or other fixed income security. But it requires a significant amount of assets to build a diversified portfolio of individual bonds. What makes it difficult for individuals to buy and sell many types of fixed income securities? High minimum investment requirements, high transaction costs and a lack of liquidity in the bond market.

But individuals can still invest in fixed income through mutual funds and exchange traded funds. BlackRock offers three major categories of fixed income investment solutions:

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Exchange traded funds (ETFs) first appealed to equity investors, providing efficient access to the world’s stock markets. Now ETFs are transforming fixed income investing.

 

Fund Ticker Exposure
Diversify Equities
iShares Core U.S. Aggregate Bond ETF AGG Investment Grade
iShares Core Total USD Bond Market ETF IUSB Total Market
iShares iBoxx $ Investment Grade Corporate Bond ETF LQD Investment Grade Credit
iShares National Muni Bond ETF MUB Municipal Bonds
Pursue Income
iShares iBoxx $ High Yield Corporate Bond ETF HYG High Yield
iShares 0-5 Year High Yield Corporate Bond ETF SHYG Short-Term High Yield
iShares J.P. Morgan USD Emerging Markets Bond ETF EMB EM Government Bonds
iShares U.S. Preferred Stock ETF PFF Preferred Stocks
Put Cash to Work
iShares Short Maturity Bond ETF (Active) NEAR Diversified Short-Term Bonds
iShares Short-Term Corporate Bond ETF IGSB 1-5 Year U.S. Corporate Bonds
iShares 0-5 Year Investment Grade Corporate Bond ETF SLQD Short-Term Investment Grade Credit
iShares Floating Rate Bond ETF FLOT Floating Rate
iShares Core 1-5 Year USD Bond ETF ISTB 1-5 Year USD Bonds

 

With separately managed accounts (SMAs) you can partner with a portfolio manager to help you build fixed income portfolios through a personal and flexible approach. Whether you’re looking for income, less volatility or diversification, SMAs offer a range of taxable and municipal investment strategies that can be customized to your unique investment needs.

Through direct ownership of securities, investors can customize their portfolio to meet their needs.
Our tool allows financial advisors to build personalized model portfolios for any risk profile.
Managed portfolios are a cost-effective way to help clients across risk profiles meet their objectives.

Want to know more about fixed income?

Hear from Jeff Rosenberg, BlackRock's Portfolio Manager for Systematic Fixed Income, on what fixed income investments are and the types that exist.

  • View transcript

    Q: What is fixed income?

    Fixed income is nothing more than a fancy word for the world of investing in bonds. And when we think about the stock market, it turns out that the world of investing in bonds is much, much larger. What does bond investing entail? Well it entails interest rates, and government bonds, but so much more than government bonds is available to investors inside the overall bond market. What are some of the other opportunities for investors in bonds include high yield bonds, and investment grade bonds, global opportunities in non-dollar-denominated developed market bonds, and opportunities in emerging markets both across dollar-denominated issues, from sovereign, that’s country issuers, corporate issuers, also typically in dollar form, as well as local currency-denominated emerging market bonds. The world of bonds goes beyond fixed income in the sense of we have floating rate bonds. We have things that are in the bond market that are not bonds, they are called loans. That’s the bank loan market. One of the attractions to the bank loan market is that it is generally a floating rate market. Floating rate means that rather than fixed, as interest rates rise, the coupons on your loans in this case can rise as well.

Why BlackRock?

Investors trust BlackRock with more assets than any other fixed income manager. Our goal is to provide you with the quality and value you deserve and expect, evidenced through our history of attractive performance, competitive prices and a comprehensive set of offerings.