Today, the capital market offers multiple options for those looking to venture into the world of investments. These options can offer anything from security and profitability, to considerable risk that may or may not end in profit.
Today we will talk about a considerably traditional way of investing capital in the market, fixed income investments.
There are several types of fixed income investments and their benefits vary between them, but what are the advantages and disadvantages of these types of investments?
Advantages of equity instruments
One of the most notable advantages of this type of investment and one of the reasons why it is preferred by investors is its low associated risk. This type of investment ensures the investor’s capital and considerably reduces the insecurity that can be generated if, for example, an equity investment is chosen.
In addition, the fixed income also provides a return that, when compared to other types of investments, may be low, but is known in advance. This allows the investor to previously know the results that he will obtain, making it the first option for conservative investors.
Another of the main attractions of fixed income investments is that they allow you to obtain a periodic income, the amount of which is based on the capital that has been invested.
Finally, this type of investment is considerably popular since it can be easily sold and thus have the funds in cash. In this way, the person who requires liquidity can sell their shares faster, thanks to the general acceptance of this form of investment.
We can then observe how fixed income investments are presented as a safe option to invest funds in the capital market. However, there are also some downsides.
Disadvantages of fixed income investments
As the main disadvantage of this type of investment, we can mention that its profitability is the lowest in the financial market. While higher risk may lead to higher profit, many investors choose to go the secured path, even if it means less reward.
Another important aspect to mention is the currency depreciation faced by these types of investments, which can significantly damage the value of your money.
Although it seems that fixed income investments are risk-free and 100% safe, nothing is further from the truth.
Fixed income investments run credit risk, market risk, movement penalties, hidden fees, transparency in results, among many others.
Choosing the type of investment that suits both your capital and your needs requires the advice of a professional dedicated to look after your interests. At BBVA you can find that personalized attention that will increase your knowledge as an investor, but that will also be included every step of the way.
It only remains then to study the advantages and disadvantages of each type of investment in order to make an appropriate decision.