Fixed Income Investing

People on fixed incomes need a sure thing when they look to invest their money. They need something that will give them a steady return on their investment. A great way for these people to invest is to buy bonds, which are perfect for fixed incomes. Why?

Well, here is how bonds work: In the corporate world, when a growing company issues bonds, it may be because it is unable to generate enough cash to pay for the supplies and equipment necessary to keep it growing. As a result, the company can either go public, or issue bonds. If the company issues bonds, the investor is actually lending money to the company in return for the company paying interest at set intervals for a predetermined amount of time. That interest gives the investor a source of monthly income for saving or discretionary spending.

To invest in bonds you should find a bond trader who comes highly recommended. Make certain that the friend or relative who recommended the broker has worked with him or her for a long time, getting good advice and a consistently good return on their money.

With few exceptions, most bonds aren't listed on an exchange, but are traded through a network of dealers. Some bonds may seem more attractive than others. But the best and surest way to buy bonds is to look over a list of available issues from your broker and select the ones that will work for you. The bond market is a very different world than stocks. And if you're on a fixed income, it's really important to consider your bonds a long-term investment.

A great many investors believe that nothing beats the stock market. So why do you think anyone would invest in bonds? Although they are far less sexy than stocks and lack the possibility of riches beyond one's dreams, bonds offer benefits that are suited to the investor living on a fixed income.

And here's where the "sure thing" theory comes in: Unless a company goes bankrupt, someone who invests in bonds can be almost completely certain that they will receive back the amount they originally invested. Stocks, which are subordinate to bonds, are much riskier.

Another great benefit is that bonds pay interest at set intervals of time, a good source of valuable income. Retired couples, individuals, or anyone who needs a steady cash flow, take note. Some of the interest would be sent to the investor monthly or quarterly. This money can be reinvested or used for luxuries or living expenses.

Bonds can also be the source of a nice tax break for some people. When, for instance, a government or municipality issues bonds to raise money for the purpose of building bridges, roads, and other public structures the interest that is earned by the investor is tax exempt. This can be a real plus for retirees or those who need to reduce their taxes.

But remember, before you plunge in, have your broker explain more about bonds--all of the ins and outs, and especially the "spreads" in bond trading. And then enjoy your new source of income!