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What Is Fixed-Income Portfolio Management?


Fixed-income portfolio management is an investment approach that focuses on the preservation of a specific capital. It relies on investments such as bonds, CDs and annuities. While fixed-income portfolios can help maintain capital, there are some things to keep in mind with this form of investment. If you’re not sure whether this type of investment should fit into your personal portfolio, consider speaking with a financial advisor

What Is a Fixed-Income Investment?

Fixed income is a kind of low-risk investment that makes interest payments on a fixed interval. Some of the most well-known types of fixed-income securities are bonds, including U.S. government, corporate and municipal bonds. However, fixed income can also include other assets, such as certificates of deposit (CDs), money market funds or annuities.

Because these investments usually have a low level of risk, they tend to have lower returns than other investments, such as stocks. However, investors are willing to accept lower returns in favor of regular interest payments. Interest is paid on a set schedule, such as monthly, quarterly or every six months. With regular bonds, the debtor also repays the principal when the bond matures.

The goal of investing in fixed income is less about growing one’s wealth, and more about avoiding certain risks, such as loss of principal and inflation risks. This is not to say that wealth creation is not possible with fixed income, but it generally is not the primary goal of this type of investment.

Therefore, fixed-income investments are usually most popular among investors who don’t have a lengthy time horizon, such as retirees. But risk-averse investors may also be interested in fixed income, and most investors can benefit from adding at least some fixed income to their portfolios.

Wealth Preservation Strategies

fixed income portfolio management

Wealth preservation is not always as simple as buying a few government bonds and waiting for them to mature. While wealth preservation is an entire topic of its own, there are a few strategies we can consider. Here are the three most important strategies you can use to preserve your wealth.

1. Diversify Your Investments

Diversification is just as important for preserving wealth as it is for someone investing in stocks. The biggest difference is the types of assets in which you will invest. There are several types of bonds in addition to Treasury Inflation-Protected Securities (TIPS).

Fixed income also includes CDs and annuities. And you may also want to add dividend stocks as well as real estate to round out your portfolio. Every investor has unique concerns that will influence his or her portfolio allocation.

2. Pass Your Wealth to the Next Generation

Once you have developed a plan to preserve your wealth, that plan should allow you to remain wealthy until the end of your life. That means you will have wealth until you die, and so you should have a plan for your money. This means creating documents such as a will and an estate plan.

After all, there is a lot to contemplate. For most people, giving most of their wealth to their children is the most logical choice, but perhaps you don’t have children or have other plans for your wealth. There are also things you will have to keep in mind, such as estate and gift taxes.

3. Give to Charity

Giving to charity is another way to preserve your wealth. Not only do charitable gifts help organizations that are important to you, but giving to charity can also have certain benefits. For instance, it can help reduce your tax burden. You can also set up a charitable foundation if, for example, you don’t want to be involved with managing the money.

Pros and Cons of Fixed-Income Portfolio Management

When managing a portfolio of fixed-income investments, there will be pros and cons, just like there are with most types of investments. Fixed-income investments certainly have their place and will benefit many portfolios, but that doesn’t mean that there aren’t things you should consider before deciding to manage your portfolio this way. Here are the biggest pros and cons of this type of portfolio management.

Pros of Fixed-Income Portfolio Management

  • Regular interest payments
  • Tend to have less risk than equities
  • Some fixed-income securities are government-backed

Cons of Fixed-Income Portfolio Management

  • Returns tend to be lower than returns on stocks
  • Certain risks still apply, such as credit and interest rate risks
  • Inflation can also hurt returns

The Bottom Line

fixed income portfolio management

Fixed-income portfolio management aims to preserve one’s capital and generally relies on low-risk investments such as bonds, annuities and CDs. There are many strategies one can use to preserve wealth. Diversifying across different types of investments is one of the most important, but there are other steps you may want to take. For instance, you could donate to charity to lessen your tax burden. There are many ways to preserve wealth; what makes the most sense for you will depend on your situation.

Tips for Investing

  • Deciding how to allocate your portfolio isn’t always easy. However, a financial advisor can help you make the right choice. A financial advisor can help you create a strategy to reach your goals. And finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors who serve your area. Plus, you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • Whether you are building wealth or trying to preserve it, you may not know how your investments will look in 10, 15 or 20 years. Try SmartAsset’s free investment calculator to estimate how your investments will change or time. Whatever your time horizon might be, it’s important to know where you stand.

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