As the COVID-19 pandemic continues to affect global economies, investors are looking for safe and secure investment options. Fixed income investments offer a reliable source of income and stability to investors. They are a crucial part of any well-diversified portfolio as they offer stable returns and low risk. In this article, we will discuss the top fixed income investments to consider in 2021.
1. Treasury Bonds
U.S. Treasury bonds are considered the safest investment in the fixed income category. These bonds are issued by the U.S. government and backed by its full faith and credit. They offer a guaranteed interest rate and a return of principal when the bond matures. Treasury bonds are available in different maturities, ranging from short-term (less than a year) to long-term (up to 30 years).
2. Corporate Bonds
Corporate bonds are issued by companies to raise capital. They offer higher interest rates than treasury bonds, but also carry more risk. The creditworthiness of the company determines the returns on these bonds. Blue-chip companies with a good credit rating are considered safer investments than small companies with poor credit ratings.
3. Municipal Bonds
Municipal bonds are issued by state or local governments to fund infrastructure projects such as schools, hospitals, and roads. They offer tax advantages as the interest income is exempt from federal taxes and, in some cases, state and local taxes. Municipal bonds are generally safe investments but carry more risk than treasury bonds.
4. Certificate of Deposits (CDs)
CDs are a safe and secure investment option. They are issued by banks and offer a fixed interest rate over a specified term. CDs have an insurance coverage of up to $250,000 per depositor per institution, making them a low-risk investment option.
5. Money Market Funds
Money market funds invest in high-quality, short-term securities such as treasury bills, certificates of deposit, and commercial paper. They offer a low-risk investment option with higher returns than a traditional savings account. These funds are suitable for investors who want to earn interest income without assuming a lot of risk.
In conclusion, fixed income investments are an essential part of any well-diversified portfolio as they provide stability and an income stream for investors. The top fixed income investments to consider in 2021 include treasury bonds, corporate bonds, municipal bonds, certificate of deposits, and money market funds. Investors should conduct due diligence and consult with a financial advisor before investing in any fixed income security.