Fixed Income Investment

Comments (20)

Fixed Income Investment

By: Richard Hamilton

With interest rates at 40 year lows it seems difficult to find fixed income investments with high yields. Money Market funds are paying investors about 1.) 4% and Commercial Paper is only yielding 2.) 3%. For those willing to commit their capital for longer periods of time, a 5 Year Corporate Bond yields about 5%.

How does an investor find a good, high yielding, fixed income investment without taking too much financial risk? Many investors are looking into bonds issued by privately held companies that have strong balance sheets. Unlike fixed income investments that trade publicly, privately held bonds do not trade and therefore do not go down in value when interest rates rise. In addition, private companies do not have Standard & Poors ratings and therefore must offer investors a higher yield to attract their capital. In many cases, private companies that issue high yield bonds are not willing to sell equity because they believe the company will be worth more money in the future and would rather pay a high yield to investors than an equity stake in the company. This fact alone is a good sign for investors looking for an alternative fixed income investment to publicly traded bonds.

As an example, Global Financial Credit, LLC ( is issuing a private placement of 3 Year Notes with a 12% Coupon that pay interest quarterly. A $100,000 investment will yield $12,000 per year of income or $4,000 every three months. The company has been profitable in every year for the last 3 years and management is not willing to sell equity in the company. This is an excellent situation for fixed income investors to pursue because the fact that management will not sell an equity portion of the company is exactly the reason a debt investor should be interested in the high yielding fixed income investments they are issuing.

If you are an income oriented investor it is important to consider each investment carefully and diversify your investments to minimize risk. Although there are very few high yielding investments available in the public markets, with a little digging and research fixed income investors can find much higher yielding securities in the private market without taking on more risk.

About The Author

Richard Hamilton is an asset backed investment banker with 20 years of experience with Kidder Peabody & Emerson Capital, Inc. He is currently retired and is consulting private companies regarding financial instruments.


Tye Five 18.03.2008. 14:38

What are some examples of fixed-income investments? I need to set myself up so that fifty to 80 percent of my income is in bonds and other fixed-income investments. I get the bonds part, but I'm a little confused over fixed income investments. Thanks.


Tye Five

Admin 18.03.2008. 14:38

Fixed income is income that does not marginally change. Two excellent examples of fixed income investments are : CDs or interest from a savings account. Prefered shares can loose value.


robert w 02.11.2007. 00:47

On fixed income investements are the monthly dividend payouts taxed at the 15% dividend rate or is it income? Are the monthly dividends considered straight income ot be added to your yearly income or are these texed at 15% rate. I am talking about taxable fixed income investments.

robert w

Admin 02.11.2007. 00:47

The first thing you need to do is look at the prospectus for the fixed income investment and see what is generating the income. Most of these investments generate income from bonds.

Most of that income is going to be interest. Sometimes the payments are called dividends but are in fact interest.

Interest income gets no tax break whatever it is called. It will be added to your other income and taxed as ordinary income.

If you have some kind of taxable investment that is based on dividend-paying stocks, and you get a monthly check for that, then those could be dividends for IRS purposes. If those dividends are from most domestic corporations, they are mostly "qualified" to be taxed at a maximum of 15%.

This second scenario is not very likely because an investment that is going to pay you a fixed income is more likely based on fixed income investments, namely bonds.

If your investment is going to be paying you back your original contribution over time, that has tax implications as well and you should consult with a tax professional knowledgable about taxable annuities to figure the taxes on the payments you will receive.


Miss Yahoo 27.10.2008. 02:08

How do you think this will affect an investment portfolio? Suppose that you have a client whose investment portfolio you have been managing for the past five years.

Suppose further that this client believes that the equity market will increase this year and wants to re-allocate his fixed-income investments to the equity allocation.

If you decrease his bond allocation and increase his stock allocation, how will this affect the expected return and the standard deviation of the portfolio?

Miss Yahoo

Admin 27.10.2008. 02:08

This sounds like you have been reading one too many finance text books. The numbers you are talking about can be computed, but are practically worthless. This is because the inputs to the calculations are estimates with such huge error margins that they should be termed "guesses". The biggest tip-off comes from the use of the term "standard deviation". This implies that the person with the formula thinks of market results as following a normal or Gaussian distribution. Professors like to believe this because it allows them to use all sorts of well understood statistical tools, so they ignore the ample empirical evidence that returns are not normally distributed.


zippyzop 16.04.2007. 16:49

How do I get in front of/find Fee Only RIAs who want to work with alternative investments? I am in charge of selling my company's fixed income alternative investment. It is quite a good product, and has returned over 9% over the last 5 years with low risk. I am trying to find RIAs and other consultants who will take a pitch from me, to direct their clients/foundations, etc. Any ideas how to break through to this market?


Admin 16.04.2007. 16:49

It depends on what you're looking for. Most RIAs have a research department who vets the managers who are put on the platform, though many can use an investment manager on a dual contract basis. Your best bet is probably to get to know a financial adviser who works for one of the major wirehouses and see if they would be willing to put their clients in your product on a dual contract basis. They also would probably be able to forward your contact information to their research department so the reseach analysts could perform due diligence on your firm.

Do you report your composite results to Mobius or PSN? If so, then if your performance is that good, then research analysts will find you as your firm pops up in their screens.


sunshine 21.05.2009. 13:42

How is money supposed to earn in a fixed income fund like Euro fund? Will you get dividends every month? Is there a site where I can get more information on investing in fixed income funds and how to manage the investment?


Admin 21.05.2009. 13:42

A fixed income fund doesn't mean that investors get a fixed amount of dividend each month. It means that the fund itself invests in fixed income securities (i.e., bonds and money-market instruments).


gurpreets_81 13.05.2010. 06:06

what shoud be the right asset allocation for ideal portfolio ? I am 29, married and have kid. after deducting all personal liabilities , i decided to spare Rs 2,61,000 for investment. asset allocation for my investment portfolio is such that - 19.2% in equity , 30.3 % in fixed income investment, 5.7% in metals like gold, 44.8 % in real estate. Please sugest is this right asset allocation or should i modify my portfolio ?


Admin 13.05.2010. 06:06

Your asset allocation depends on you. Your understanding of risk. Your time line.

Personally... I think half of your portfolio in real estate is nuts (scary nuts). 30% in fixed income is great if you were 50 years old. 19.2% in equity will leave a lot of growth on the table. Coming to Yahoo Answers for an "asset allocation" model..... is also very dangerous to your financial health.

Learn about "asset allocation". Make your own plan.

BTW: If inflation comes back in the next year or two...... your "fixed income" portfolio will tank.


SEAN W 18.07.2010. 14:49

What is a conservative average interest over long term for fixed-income securities? What is a conservative average interest over long term for fixed-income securities?

I am looking at guaranteed investments that can compete with average home appreachation which is around 5% and naturally that would be tax free


Admin 18.07.2010. 14:49

It depends on how much you have at your disposal to invest, and what you would consider conservative. There is great value in the market right now in emerging market government bonds, specifically Brazil. Government bonds of various maturities are paying in the area of 11-12% per annum right now, this to invest into the largest economy in Latin America. In comparison Mexican bonds are only paying out around 7% and I am far more bullish on Brazil doing well in the middle/long term. The problem is you would need to have a minimum of about $250k at your disposal, or chip in with a group of buddies that you trust. I hope this helps, good luck.


RAM 03.10.2011. 15:41

It is hard to refinace your home even with millions in equity for retirees on fixed income for 300k? Finacing / refinacing rules are so much out of line that one who has million in home equity and more in investments cannot refinance a mere $300,000 Mortgage loan if he is retired and has fixed income. Why?


Admin 03.10.2011. 15:41

He has to have the ability to repay the loan. No matter how much equity there is there has to be income to write that monthly mortgage check. Unless the retiree is earning at least 80k a year there will be no loan. It would be stupid to borrow money that is impossible to repay..


Hannah 19.04.2013. 05:19

How and where should I invest my money? I work part time and going to school part time (will be full time this summer or fall depending on my finances then). I work at a chain grocery store where I currently put 15% of each paycheck away into a 401k with no matching. I currently have my money put half into a fixed income fund investment that has interest similar to what you would have in a CD and the other half into my retirement date fund of 2055 (I'm 21).

I did this thinking that the great return would be nice on the retirement fund date but I'm extremely hesitant because I will probably only be working for this company for another three years max. Also, I really don't like risky investing so I shoved half of it in the fixed return. I know that this probably wasn't the smartest move, but it works for now.

I've been saving since February (started with only 7% investing, the company wouldn't let me start a 401k until I turned 21) and I have around $300 saved so far. Not much so it shouldn't be too hard to change into a better investment, but I don't know what would be best for my situation.

Any advice that you can give would be great, thanks! :)


Admin 19.04.2013. 05:19

When you sell investments, you generally have to pay fees. Consider letting the $300 ride where it is and change where your future investments go. If it is offered, go for a ROTH 401(k) instead. That way you pay taxes on the income like normal and then use the already taxed money to fund your retirement account. When you pull the money out, you don't have to pay taxes on the principal or the earnings. Since you are young, this will save you a lot in taxes over your lifetime.

Consider getting a ROTH IRA going as well. After you've had it for at least 5 years, you can withdrawal your principal (amount invested) without incurring penalties if you get in a hard spot financially. And since it's after tax money, there are no taxes to pay on this money when you pull it out. A lot of people use a ROTH IRA to make their emergency living funds that they would use if they were to lose their job. The important thing is to get a it going soon so you can work on the 5 year period. The idea is to get 6 moths to a year worth of income saved so you can make it if something bad happens.

Look into spreading your investment inside these accounts across three to five different mutual funds. Look for funds that do not have annual management fees. Look at how the funds have performed in the past 10 years or so for the big picture and make sure they have done well over the past couple of years, since the market really has recovered pretty well over that time.


Bob 23.01.2013. 04:11

How can I learn how to invest in fixed income? I'd really love to learn how to manage a fixed income portfolio. I know relatively little and have no clue where to start. Any advice (perhaps some books to read)?

Thanks a lot


Admin 23.01.2013. 04:11

My investment analyst friend recommends the one below. I personally do not have much experience or real interest, but I trust his research.


Write a comment

* = required field





* Yes No