Fixed Income Producing Investments

Fixed income investments generally pay a return on a fixed schedule, though the amount of the payments can vary. This type of investment can include corporate and government debt securities, leveraged loans, preferred stocks, high yield, and investment grade debt and structured products, such as mortgage and other asset-backed securities. 

One role of bonds in your portfolio in addition to providing income is to smooth out and reduce the volatility of your portfolio. Bonds can provide an additional stream of income in a portfolio, with less risk than individual stocks or stock mutual funds.

The relationship between bonds (fixed income) and stocks is generally inverse and they move in opposite directions. This means that when bond prices increase, stock prices decrease; and vice versa. This effect is usually more pronounced for longer-term securities. 

In general, the fixed income market has volatility and fixed income securities carry interest rate risk. Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties.  The return of principal for bond funds and funds with significant underlying bond holdings is not guaranteed. Mutual fund shares are subject to the same interest rate, inflation, and credit risks associated with the underlying bond holdings. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. In addition, foreign bond investments also carry the above-mentioned currency/ exchange rate risk where the strength or weakness of the foreign currency could impact the overall value and return when considered in terms of the U.S. dollar.