Fixed Income Investments

Secure Long-Term Investment Vehicles Key to Balanced Portfolio

Sep 22, 2009
Miranda Miller

Term Deposits and Other Fixed Income Investments - Tracy O

Fixed income investments don't offer the lucrative return potential found in stock market investments. However, they are an important part of a balanced portfolio.

The right balance of risk and reward is different for each individual and dependent on factors including age, income, and desired retirement income. While the stock market and foreign currency trading (forex) can bring huge returns, they carry relative risks. Fixed income investments help to reduce the portfolio’s overall degree of risk.

Fixed income investments, generally issued by the government or a corporation, offer principal safety and steady interest income.

Mortgage Backed Securities a Shared Fixed Income Investment

Mortgage-backed securities provide a monthly income for investors seeking a safe fixed-rate option. Each month, the investor receives a share of the interest and principal on a pool of several mortgages.

As with mutual funds, the risk is spread out over several investors and a large number of mortgages.

Canada Bonds a Safe Long-Term Investment

Canada bonds are completely risk-free if held until maturity. The government guarantees every cent of the principal and interest, making their bonds the safest investment choice by far. These bonds are available in Canadian or American currencies, although an American currency GOC bond is still considered Canadian content in the portfolio.

Terms range from one to thirty years, with a minimum $5,000 investment for Canadian currency bonds, or $25,000 for USD bonds. Government of Canada bonds are RRIF and RSP eligible and provide a safe option for these investment portfolios.

Provincial Savings Bonds Comfortable for Beginner Investors

Provincial savings bonds carry a slightly higher risk than Government of Canada bonds, although they still represent one of the safest investment options available. Provincial bonds pay a guaranteed, fixed level of interest and are available for one to thirty year terms. With the higher risk comes a higher yield than that offered by the Government of Canada bond.

Term Deposits and GICs Give a Balanced Portfolio Some Liquidity

Term deposits and GICs are liquid investments that offer a predetermined interest rate over a preset period. Although the investor can cash out at any time, they will pay a penalty for cashing out before the maturation date. GIC’s, available in terms as short as 30 days, are a safe choice for beginner investors. See the Quick Reference Guide to GICs for more information on guaranteed investment certificates.