Why Fixed Income Fund Investments Should Be Your Next Investment

Regardless of whether you are a beginner looking for the best investments in the Philippines or near retirement, fixed-income investment or bond investment should have a place in your portfolio. In this article, the essence of fixed income investing, types, as well as benefits and risks associated with it is deliberately discussed while terms used have been simplified for beginners.

What is Fixed Income Investing?

With fewer risks than stock investing, fixed-income investing is an approach focused on the preservation of capital and of course, income. Being one of the best investments for beginners in the Philippines, this investment approach is offered by many trusted asset management companies. It is commonly combined or mixed with other investments to build a well-diversified investment portfolio that can withstand risks or reduce the effects of risks.

Finally, fixed-income investments get their name due to the nature of the interest income level which is fixed.

Types of Fixed Income Investments

Now that you have an idea of how fixed income investing works, the next important thing to know is the best investment for beginners in the Philippines. In this section, you will learn the three major types of fixed-income investment available in the country. From securities issued by the government to bonds offered by corporations, read through to discover where you can put your investable assets today.

• Government Securities

Fixed-income securities offered by the Philippine Government, as issued in both Peso and US Dollar –denominated securities, are categorized into two kinds of Peso Government Securities, including treasury bonds and treasury bills. Treasury bills, popularly known as T-Bills, are short-term fixed-income securities with a maturity of a year or less. On the other hand, treasury bonds are obligations with maturities ranging from more than 1 year up to 25 years.

• Municipal Bonds

Municipal bonds operate virtually in the same way as government securities, except they are issued by state and local governments or LGUs. To put it simply, municipal bonds are debt obligations issued by government entities below the national level with a lower rate of risk.

• Corporate Bonds

As the term suggests, corporate bonds are issued by private corporations listed on the stock exchange. One of the most common reasons why corporations offer corporate bonds is to expand their business and sustain their operations.

There are three ways you can purchase corporate bonds, one is through agents, through brokerage companies, or indirectly through asset management companies.

Moreover, bond mutual funds and bond ETFs or exchange-traded funds present the best option for investment for beginners. These funds are professionally managed investment products offered by asset management companies. Many offer low investment minimums with no hidden fees or charges.

Potential Benefits and Risks Associated with Fixed Income Investing

In every investment vehicle, you put your investable assets come benefits and potential risks. In this section, we listed two of the most important benefits and risks that you should know before you start investing in fixed-income funds.

Benefits of Fixed Income Investing

• Great addition when creating a diversified portfolio

As mentioned previously, fixed income is known to be associated with lower risks than stocks. The reason behind this is that bonds are generally less volatile due to economic downturns and other events related to macroeconomics.

Investment Helpful Tip:

If you are working towards building wealth through investment over time for your retirement or other long-term goals, adding fixed income investments to your stock-filled portfolio can potentially offset losses when the stock market starts to change movement.

• Ideal when capital preservation is a priority

When you are inching closer to your retirement years, it is natural to prioritize the protection of your assets. And because fixed income generates fewer risks, it is deemed the best option to secure your portfolio against high levels of risk.

Risks associated with Fixed Income Investing

There are four major risks associated with fixed income investing, from bond price declines due to interest rate increases to inflation risks. One important factor to note is that these risks are highly dampened when you invest with trusted asset management companies in the Philippines.

• Risk of interest rate

To put it simply, the major cause of price volatility or fluctuations of price in bond markets is the movement of interest rates. With interest rates rising comes the downfall of bond prices. Meaning they lose value.

Now let’s go back to one of the benefits from the previous section – a diversified portfolio. Having a diversified portfolio allows you to reduce the level of risk your investments will go through. Of course, working with a trusted fund manager should help you do just that.

• Risk of inflation

In simpler terms, if the rate outpaces the fixed amount of income at regular intervals, investors lose purchasing power. Similar to interest rate risk, the risk of inflation is alleviated by having a diversified portfolio.

Invest in fixed income today with reliable asset management in the Philippines!

From retirement to just starting out age, fixed income investment presents the best option to help reduce the impact of risks associated with stock investment. Having a diversified portfolio with a combination of stocks and bonds should help you achieve your financial goals in a sounder manner.