Fixed Income
Definition
Investments with fixed payments, typically bonds. You lend money to a government or company, they pay you a set interest rate (coupon) for years. When the bond matures, you get your principal back. Less risky than stocks but lower returns.
Why It Matters
Fixed income provides stability and regular cash flow, valuable for retirees and risk-averse investors. Bonds typically fall when stocks rise, making them good diversification. But inflation can erode their real value.
Example
Buy a $10,000 10-year bond at 4% coupon. You receive $400 per year for 10 years, then get your $10,000 back at maturity. Guaranteed as long as the issuer doesn't default. Stocks might return 8% but fluctuate. Bonds give predictable income.