Fixed Income Vehicles
Time and time again people talk about investors wanting safety, a rate of return and a sense of liquidity; but it’s well known that all three don’t coincide and no single asset offers this. A reasonable rate of return is typically between 6% and 8%, and investors have to decide how much risk they want in order to obtain this return. One such option for this would be through bonds or notes.
When thinking of bonds, we often think of lending and the primary points of lending include the cost, the interest rate, the terms, the time horizon to repay the loan, and what credit risks are involved. There are three types of bonds: treasury, municipalities and corporate bonds.
Treasury bonds are government held and are considered to be the only riskless security due to the tax power of the people. Although these have little to no risk, their rate of return is one of the lowest available.
Municipalities are traditionally tax-free bonds. This means that lower returns can be seen as more beneficial depending on what tax bracket the investor is in. Due to the fact that taxes are not factored in, a 4% interest rate may pay out the same as a 5.5% taxed investment.
Corporate bonds are a form of debt financing for larger companies. Among the various fixed income vehicles, a fixed income bond (bank note) is an alternative option. These bank notes are linked to the performance of specific indices and the payout is a yearly percentage paid out quarterly for the length of the note. At the end the investor gets their principal back.
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