What are fixed income securities?

The stock market can be hard to understand and there are so many different things you need to learn about in order to create a good retirement account.The stock market may be confusing but it is definitely easier to understand than the fixed income market.

Fixed income securities are investments that offer some type of regular or fixed return. Typically fixed income securities are similar to lending money t o a borrower and expecting to get money in return along with interest.

Bond investors commonly seek out fixed income securities in order to ensure that they will be able to make a certain income level. You need to construct a strong investment portfolio that is going to be able to yield the right type of return for your investments. Evaluating the risk in your income portfolio is vital to choosing the right stock and getting the right returns for your investment.

One term you need to become familiar with is known as duration. Duration is a simple way to measure time and it helps you to understand the cash flow that makes up your fixed income security. Long term bonds usually offer higher duration periods from the short term bonds and they are going to have several needs and changes to adjust to like interest rate changes and risk issues.

A portfolio manager will be able to talk you through the different investments and explain to you more about the duration you have to deal with and other things that make up your bond portfolio. Here are 4 things to consider when you are focusing on your investment portfolio:
1. Maturation date of your bond
2. The coupon rate. This is premium rate that applies to market rates
3. Coupon type. Do you have a fixed rate?
4. Embedded optionality

Typically investors look upon the maturation as a laddering formation. This simply means you are building a portfolio that includes your fixed securities along with varying the maturation date on the bond. For most people it can be a maturation date of 10 or more years. Checking on the bond one year after you have invested in it will allow you to see if the overall portfolio will help you predict your income and span them over a simple time period. Laddering your fixed income portfolio is a great way to invest your money and to make sure you are going to get the right type of return. You can actually chance the duration of your investment portfolio and you can adjust your interest rate on the investment as the maturation date comes near and you need to compensate for inflation.

Bond investors commonly look at the coupon rate in order to find higher premiums on the bond. The coupon bonds usually offer you a higher investment than you will find with other investments. The coupon bonds don't have as much risk as they come in the form of coupon cash flows. The coupon bond can reduce the duration of the bond and offer better interest rates on the bond.

The other thing you need to focus on is the coupon type. This helps you to have a lower interest rate so you don't have as much risk. You have the option to choose from a fixed interest rate or a floating interest rate. Make sure the income securities won't lose their value as you are going to have fixed coupon rates.

Lastly you need to focus on optionality. This basically refers to reducing your interest and risk in a portfolio. The bonds have a call option which is used to reduce the interest risk rate and it can improve the maturation date.