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Fixed Income

In short

Bonds and debt instruments that pay regular interest — lower risk than stocks

Fixed income investments (bonds) lend money to governments or companies and receive regular interest payments. Less exciting than stocks but provide stability and income. When stocks crash, bonds often rise — they're a safety net.

Fixed income securities pay predetermined cash flows (coupon payments + principal at maturity). Government bonds have minimal default risk; corporate bonds pay higher yields for credit risk. Duration measures interest rate sensitivity — longer duration bonds fall more when rates rise.

Related concepts

  • Equity — Equity means ownership. When you buy a stock, you own a tiny piece of that company — including a claim on its future profits. If the company succeeds, your equity grows. If it fails, you can lose everything.
  • Asset Allocation — Asset allocation is how you divide your money between different types of investments. A classic '60/40' portfolio is 60% stocks, 40% bonds. It's the most important decision in investing — determines most of your long-term returns and risk.
  • Yield Curve — Normally, long-term bonds yield more than short-term ones (upward sloping). When short-term yields exceed long-term (inverted curve), it's historically predicted every US recession in the past 50 years. Investors call this the most reliable recession indicator.
  • Treasury Yield — Treasury yields are the interest rates the US government pays to borrow money. They're the foundation of all financial pricing. When 10-year yields rise, it hurts stocks (especially growth stocks) because bonds become a more attractive alternative.