11 of the Best Fixed-Income Investments You Can Make in 2023
Written by
Caitlyn Moorhead
Edited by
Elizabeth Constantineau
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With so much uncertainty in the market, it’s hard to know where to put your hard-earned cash. Between interest rates, inflation and a possible Federal Government shutdown, investors are turning to fixed-income investments. These are lower-risk options that provide consistent payments. But what are the best fixed-income investments for 2023? Keep reading to find out.
Investing With Fixed Income: Quick Take
Fixed-income investments typically don’t have as many interest rate risks as they pay a fixed rate or dividend until the account reaches its maturity date. It’s important to understand some of the terms that will surround your investments. Here are a few fixed-income examples to know:
- Maturity: The day your investments expire or your principal is repaid to you.
- Price: This is the current value of your investment.
- Coupon: The fixed rate of interest that you receive.
- Yield: This is not the coupon payment, but rather the overall return from the fixed-income investment that you receive.
11 Best Fixed-Income Investments
If you’re on the lookout for fixed-income investments, here are 11 of the best options to consider:
- U.S. Treasury options
- Preferred stock
- S&P 500 ETF
- High-yield savings account
- Real estate investment trust
- Rental properties
- Value stock fund
- Short-term bond fund
- Certificate of deposit
- Money market funds
- Corporate bonds
1. US Treasury Options
As one of the most popular fixed-income investments, U.S. Treasury options are a tried and true way to get a return on a safe investment backed by the U.S. government. They are a long-term investment that typically matures in 20 to 30 years. These come in variations like Treasury bonds, Treasury notes and Treasury bills.
2. Preferred Stock
Preferred stocks are equity investments, however, they are similar to fixed-income investments and work well under the same circumstances. The dividends they pay remain consistent even with interest rate fluctuation. Here are some takeaways:
- Often have higher yields than bonds.
- Tax-friendly as they are qualified dividends.
- Preferred stockholders are paid before common stockholders even if a company goes bankrupt.
3. S&P 500 ETF
The S&P 500 — like every other major market index — has never failed to come back from a bear market. This makes an S&P 500 ETF investment a good choice for those looking for fixed-income investments. This exchange-traded fund tracks the performance of major stock indices and is known as one of the safest ways to build wealth over time.
4. High-Yield Savings Account
With the Fed raising interest rates to combat inflation, high-yield savings account interest rates are at an all-time high. Many of these accounts can be found at FDIC insured financial institutions. This makes them a safe and smart choice for investors looking to grow their funds over time. Just keep in mind that these rates can be variable and might change.
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5. Real Estate Investment Trust
Real estate investment trusts allow investors access to real estate without having to actually own any. REITs also provide dividends to shareholders. Dividends are typically high and volatility is often less than the stock market overall.
6. Rental Properties
Rental properties can generate large amounts of cash flow but do come with a drawback — they require management and sometimes come with risk. Income with these investments should be consistent, as long as they are occupied with tenants and investors can also take advantage of some tax benefits.
7. Value Stock Fund
Value stock funds offer shareholders dividends. While these are tied to the performance of the companies in the fund, they do offer the potential for a certain amount of fixed income. Before adding these to your portfolio, make sure you research the companies in the fund and understand the past performance and future outlook.
8. Short-Term Bond Fund
Short-term bond funds provide an amount of income in exchange for the security of getting your money back at maturity. These funds come with lower risk but are not entirely risk free — yields can change over time as the securities in the fund are replaced. But this fixed-income investment is a great choice for those interested in a short-term option.
9. Certificates of Deposit
Certificates of deposit can often pay more than high-yield savings accounts or even short-term bond funds. While you will be locked in for a set period, many CD accounts have maturities of a year or less.
10. Money Market Funds
As a subclass of mutual funds, money market funds invest in highly liquid fixed-income assets. They are not FDIC-insured but do have higher yields than a CD or savings account. However, be aware that they also have higher expense ratios. Though they aren’t flashy, money market accounts are a good way to save smaller sums of money and still get a consistent yield.
11. Corporate Bonds
Companies issue corporate bonds and they tend to have higher yields than government bonds, but with that comes higher risk. Make sure to check any corporate bond rating you are considering to ensure it aligns with your risk tolerance. Keep in mind that bond prices have an inverse relationship with investment-grade bond yields.
Final Take To GO
As no one can predict which scenario will play out over the next 12 months, it can help to know the best fixed-income investments. The right one for you will collectively provide you with income, safety and the potential for higher yields with less risk of default.
FAQ
Here are the answers to some of the most frequently asked questions regarding the best fixed income investments.- What is dollar-cost averaging?
- Dollar-cost averaging isn't an investment, per se, but it's a good strategy to help you make money in 2023. If you own stocks, adding regular amounts every month to your portfolio will allow you to lower the long-term average cost of what you own by buying more shares when prices are low.
- What is the safest investment with high returns?
- Some of the safest investments that offer high returns are high-yield savings accounts and CD accounts. These can be found at FDIC-insured institutions and typically offer high interest rates.
John Csiszar contributed to the reporting for this article.
