Debt and fixed income securities are some of the most underrated, but essential, assets in a portfolio. Unlike fixed deposits, or even equities, they generate a consistent stream of returns and can provide you protection during negative economic market events. They are a crucial diversifier that everyone should consider in their portfolio.
Here were their top 3 reasons:
1. Consistent Returns
If you’re looking for consistent, predictable returns then consider diversifying your portfolio by including more debt and fixed income. Unaffected by erratic movements in the market, these asset classes give far more clarity on your return. Want to know why?
Let’s talk coupons. Debt securities are supported by an underlying coupon, which target specific returns. Because these earnings are targeted they make debt instruments far more reliable and stable than equities. While equities may provide higher returns, a smart investor must remember that these returns may only be for the short-term and are also susceptible to greater losses.
The underlying coupon behind debt instruments makes them incredibly unique. Why? Unlike most other asset classes, they are able to maintain their intrinsic value. Believe us when we say- that’s a rarity. For this reason, investments in debt and fixed income provide linear growth without worry of changing trends in the market. Irrespective of economic cycles, these securities provide a stable stream of return, even when the market takes a downturn. These investments are typically far safer than volatile equity markets, which are in constant flux due to regular changes in valuation.
3. Fixed Investment
Debt and fixed income securities also provide assurance. How? They have a fixed investment timeline. Think of your investment as a seed. With the correct timeline, not only are you watering the seed, but you have a projectile of how big your tree is going to grow and by when. In other words, you know when your money is going in and when its coming out.
In contrast to equities, which often have an unclear maturity date, these asset classes have a set pay-out rate by a specific date.
While the timeline is variable, depending on the coupon, they are guaranteed to deliver in that period. In other words, they can serve as a shorter-term investment with stable returns. For those individuals planning for specific capital events, i.e. their child’s education abroad, investments structured around these asset classes are a great way to plan for the future.