The investing process is usually very simple.
You just make a small investment and go on to make a bigger one.
Investing in a fixed income investment is different, however, as there are multiple factors that influence the outcome of your investment.
Here are the five key factors that impact how well a fixed-income investment will perform over time:• When to buy, and when to sellInvesting in fixed-cost fixed-rate securities is the best option for many people, as they usually have the least amount of risk and can buy or sell at any time.
The risk of having to sell your fixed- rate investment is very low.
However, some investors, especially those who are risk-averse, prefer to buy and sell at the same time, and this is where the term “fixed-cost” comes into play.• How much interest to payInvesting money is usually invested in one or more fixed-interest securities, such as cash or bonds, with a term of two to four years.
For example, the average interest rate on fixed-term fixed-risk bonds is 3.3%.
However, investors often pay more for bonds than fixed-time fixed-rates, and therefore the rate is more attractive to them.• DurationThe longer a fixed rate investment lasts, the higher its interest rate is likely to be.
The longer the investment lasts and the higher the interest rate, the more money will be required to repay the investor, which can be a disadvantage.• Amount of debtThe longer an investment is in the form of fixed- and floating-rate bonds, the greater the amount of debt is likely, and the greater potential for the investment to go bad.
If you are unsure whether an investment will be a good investment for you, you should consider whether it will be suitable for your circumstances.• RiskinessThe longer the fixed- or floating-ratio investment lasts in the fixed rate or floating bond, the risk of the investment failing will be higher.
If the investor can no longer afford the investment, the investor will most likely sell the asset to cover the costs of the withdrawal.
The investor may be able to keep the asset for a few years, however this may cause the investor to lose more than he would have had if the investment had been fixed-rated.• Interest rateWhen a fixed or floating rate investment has been in the bond or fixed-ratios, the rate that it will pay out will generally be determined by the interest rates that are currently prevailing in the market.
The rate that investors pay on their fixed-to-floating-rate investments can be seen as the interest paid on a bond.• Rate of returnIf the rate of return on a fixed to floating-rated fixed-earnings bond is higher than the rate paid on an investment in fixed rate fixed-currency bonds, then investors will pay higher interest rates to borrow money, which may have an adverse effect on the long-term value of the asset.
Investing into a fixed yield fixed-credit bond or a fixed interest rate fixed interest-rate bond is also likely to result in higher rates of return for investors, since the interest payment is based on a rate of returns on bonds and not on a market interest rate.
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Source The Sport Bibles