What are the Pros and Cons of Fixed Income Investments?

Here are the Pros of Fixed Income Investments:

Lower risk - Fixed income investments are almost risk-free if held to their maturities. When stock market crashes, fixed income investments can still provide you steady incomes.

Steady guaranteed income - Steady guaranteed incomes from fixed income investments can help you to plan for your spending budget.

Potential tax benefit - Interest incomes from some fixed income investments are exempt from income taxes at certain levels of governments. For example, your interest income from U.S. Treasury bonds is exempt from state and local income taxes, and earnings from municipal bonds are not subject to federal taxes.

Here are the Cons of Fixed Income Investments:

Potentially lower return - When economy is good and stock market is rising, fixed income investments give mush lower returns than stock market investments. For example, returns from U.S. Treasury bonds are about 5% in 2024, while returns from S&P 500 index investments are about 10%.

Interest rate risk - When interest rises, the present values of your fixed income investments will drop. This poses a risk of losing money if you have to sell your This poses a risk of losing money if you have to sell your investments.

Issues with cash access - Some fixed income investments like CDs have penalties if you withdraw cash before maturities.

⇒ Examples of Fixed Income Investments

⇐ What are Fixed Income Investments

⇑ Introduction on Fixed Income Investments

⇑⇑ Fixed Income Investments