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February 10, 2023 | 4 min read

Fixed Income Investments: Investing for income

Looking to invest for income? Discover how best to invest your money and understand what is meant by fixed-income investments.

By Jason Star
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People choose to invest for many reasons - to grow capital, generate income, and be part of new, exciting projects. Many know that investing can generate a regular income, but knowing where to invest to generate income may be unclear with lots of investment options.

Where and how you choose to invest is tied to your tolerance for risk, how diversified your portfolio is, and the level of income you are looking for. In all cases, you should seek expert, independent financial advice before investing.

Higher-risk investment options cover products such as crypto-assets and private equity funding. These can provide investors with income and have the potential for very high levels of return. Still, investors' capital is unprotected, and you may get back less than you originally invested.

Balance risk investments have traditionally been in bricks-and-mortar such as domestic or commercial property, high-interest savings accounts, bonds and gilts that can provide a fixed-rate income with capital less at risk, providing security as they build their investment portfolio and look to the future. Some investment vehicles, such as high-interest savings accounts, have your capital investment underwritten by the government but tend to offer significantly lower opportunities for growth.

What are fixed-income investments?

Fixed income is a broad term for an investment approach that focuses on preserving capital while generating income from the invested capital.

These types of investments pay the investor fixed amounts (typically annually, quarterly or monthly) in exchange for their capital remaining invested for a defined period.

The investor gets paid a fixed amount (also known as "coupons"), typically in the form of fixed interest or dividends, which occur up until maturity. Once the maturity date arrives, the investor receives back their original investment amount.

You can view this form of investment as a loan. An investor is effectively "loaning" funds to an organisation that will pay interest on the invested funds and then releases the investor's capital back to them at the end of the loan period.

This investment approach differs from other forms, such as equities and variable-income securities.

Fixed-income investment returns are set in advance, and the amount generally remains fixed for the investment period. This is unlike equities, which may not pay out any cash to investors, or variable-income securities, where the income payment amount fluctuates, such as being tied to interest rates in a fixed-income ISA.

Fixed-income investments can come in several forms, with the most common being bonds.

Bonds are loans taken out by a government or company that pay the bondholders regular interest payments. Once the bond reaches maturity, the government or company repays the borrowed amount.

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Why choose fixed-income investments?

Investors may make fixed-income investments for many reasons.

Some may start investing to secure their future, providing some reliable, passive income that can help make future financial planning easier. Others may do so to support themselves for life stages such as retirement or to supplement freelancer work, creating a steady income to live on or acting as a safety cushion.

All investment approaches come with varying degrees of risk.

Fixed-income investment is usually a lower-risk approach, making them reasonably reliable due to receiving your invested capital back in full plus coupons. Fixed-income investments can be an option for those in a financial position where protecting capital is a higher priority than making a profit, but you should always seek professional, independent financial advice from an IFA before investing.

The benefits of fixed-income investments

Capital preservation

Perhaps the most significant benefit of fixed-income investments is that they allow investors to protect the absolute value of the capital invested because they will have their investments returned to them in full.

This investment approach usually carries less risk to capital than others, such as high-yield bonds, making it a good option for investors with less time to recoup any losses. However, investors should be wary of inflation risk - this could cause investments to lose value over time and is where interest and income payments are below the inflation rate.

This could be a good investment opportunity for those closer to retirement age who rely on their investment to provide a steady income for their future.

Generates regular income

Fixed-income investments can provide investors with a steady, regular income stream up until maturity. Because these payments are more reliable than other investments, it makes it easier for investors to manage their money and do financial forecasting.

Protection from stock market risk

While your capital is at risk with any investment, fixed-income investments tend to be less risky than stocks, as unlike stocks, fixed-income assets aren't as affected by economic risks such as sharp economic downturns and geopolitical events.

By diverting some of your investment portfolio from stocks (if you have them) to a fixed-income investment, you could potentially be able to offset any losses that occur if the stock market dips.

Easier future financial planning

Knowing the return on fixed-income investments in advance, coupons are typically set at a fixed amount, making it easier for investors to look to the future with more certainty.

Investors can financially plan more confidently by knowing how much they will have at specific points in time and how much is to come.

Property investing for income

Fixed-income investments can be made in several sectors, including property.

Professional investors can make fixed-income investments in property development companies – loaning their capital to property developers in exchange for redeemable shares and their investment returned.

At Acorn Property Invest, we offer investors a range of fixed-income property investments with terms from one to five years and with returns.

We have a robust set of safeguards to help us mitigate risks to our investors and insist on full transparency – producing regular updates so that investors can be confident about where the company is investing their funds.

After acquiring a site, our senior management team analyses the costs and the correct funding structure for the project, which can include collecting finance from Acorn's portfolio of fixed-income investors. For project-specific financing, the project joins the list of projects funded by fixed-income investing on the Acorn online platform.

Our fixed-income investors then receive quarterly returns throughout the project.

By investing through Acorn Property Invest, fixed-income investors can enjoy total transparency regarding which projects benefit from their investments, generating returns and building sustainable housing across the UK.

Find out more about investing opportunities at Acorn Property Invest.

Your capital is at risk if you invest

Investment opportunities available via Acorn Property Invest are exclusively targeted at exempt investors who are experienced, knowledgeable and sophisticated enough to sufficiently understand the risks involved and who are able to make their own decisions about the suitability of those investment opportunities.

All investors should seek an independent professional investment and tax advice before deciding to invest. Any historic performance of investment opportunities is NOT a guide or guarantee for future performance and any projections of future performance are not guaranteed.

All investment opportunities available via Acorn Property Invest are NOT regulated by the Financial Conduct Authority (FCA) and you will NOT have access to Financial Services Compensation Scheme (FSCS) and may not have access to the Financial Ombudsman Service (FOS).

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