What is Fixed Income?

We often associate fixed income with pensions and retirees, but what does it mean in the world of investing? Let’s find out.

If we’ve learned anything since the turn of the century, it’s that even though the stock market goes up over time, there can be some pretty jarring periods where it seems like every stock you own is about to go bankrupt. Needless to say, that’s not much fun for an investor, and if you’re close to or already in retirement, it can be disastrous. That’s why most investing strategies suggest a few safe, fixed-income investments.

Fixed-income investments come in the form of bonds and preferred stocks.

Despite its name, a preferred stock doesn’t represent or confer ownership—it’s debt, like a bond or loan. Also like bonds, preferreds have fixed distribution rates. So you’d only buy a preferred for steady fixed income, not capital gains.

That said, preferred stock can generate yields that are usually between 4% and 8%. And preferred shareholders are usually better protected—both in and out of bankruptcy—than common stock holders.