Fixed income investments represent the more conservative portion of a balanced portfolio depending on credit quality and are an integral component of a balanced investment strategy. By diversifying your portfolio with fixed-income securities, you can reduce your investment risk and potentially increase your returns over time.
What you need to know
A traditional fixed income investment is a debt obligation - essentially an IOU. The borrower (known as the issuer) promises to pay the investor a specified rate of interest (known as the coupon rate) on a regular basis (typically every six months) for as long as the investor holds the investment, and then repay the principal on a stated maturity date.
Similar to stocks, most debt investments trade in the marketplace and may fluctuate in price. Because the bond market is not readily visible to investors, many do not realize its size. In Canada, the fixed-income market is approximately 40 times larger in trading volume than equity securities on the TSX, TSX Venture and ME combined.
The value of a fixed-income security is tied to the interest rates and the currency of the country in which it has been issued. When interest rates decrease, the price of a bond generally will increase: the bond's coupon rate becomes more attractive compared to the current market interest rates. In contrast, when interest rates rise, bond prices generally fall. Considering the future trend of interest rates is an important part of understanding fixed-income securities.
This fixed income education center will help you learn more about investing in bonds and debt. It is designed to help you understand how to analyze how different rates of return, credit quality and length of time to maturity can help you make informed investing decisions.
Some of the ideas you may consider are:
- Features of fixed income products that can assist you with budget and long-term planning.
- Credit ratings and how these industry metrics can be used to find a risk/return ratio that is right for you.
- Tax implications of fixed income investments.
- Glossary of terms to ensure you are not overwhelmed by the lexicon of bond trading.The following chart indicates maturity ranges of specific fixed income investments.
|Fixed Income Categories by Term to Maturity|
Up to 1 year term
Up to 3 years remaining to maturity
From 3 to 10 years remaining to maturity
Greater than 10 years remaining to maturity
The information contained herein is considered accurate at the time of posting. CIBC, CIBC World Markets Inc. and CIBC Investor Services Inc. reserve the right to change any of it without prior notice. It is for general information purposes only. Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.
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