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All you need to know about fixed income investing

24 February 2023 in Investing

Fixed income investing becomes more appealing in times of rising interest rates. Dugald Barne, Investment Director at Adam & Company explains what fixed income investments are, why they’re an important part of a diversified portfolio and how you could invest in them.

What is fixed income investing?

Fixed income or fixed interest – also known as bonds – are a type of investment that provides a regular, fixed amount of income.

They’re essentially loans or ‘debt’ instruments issued by governments and companies. So, when you invest in a bond, you’re effectively lending the government or company your money for a fixed length of time which can be anything from 30 days to 30 years.

At the end of a bond’s lifetime, you get back the full amount you lent the government or company (your capital) plus a set amount of income each year called a ‘coupon’. During the course of ownership, the value of the bond can fluctuate, for example due to changes in the markets’ views of inflation, and interest rates.

Who are fixed income investments for?

Fixed income investments can be a useful addition to your portfolio as they help to provide diversification. This is because bonds typically (though not always), have an inverse correlation to equity performance, so during times of volatility they may help to smooth your returns.

However, they’re often very useful for retired investors as they can provide a regular, steady income.

Is it worth investing in fixed income investments?

It can be worth including fixed income investments as part of a diversified investment portfolio. Fixed income investments are seen as the ‘safer’ and ‘steadier’ asset class. This is because, if a company fails, its auditors go through a process of repaying its creditors and repaying bondholders is prioritised over shareholders (equities). This ultimately means there’s less risk of losing your capital.

A wide range of fixed income investments to choose from

Even within the bond market, which is seen as being lower risk than equities, there are various types of bonds, all with varying risk and return profiles.

With lower quality corporate bonds, known as ‘sub-investment grade’ or ‘high yield’, there’s a higher risk that the company issuing them isn’t creditworthy and that it might default on its bond payments. These bonds tend to be more sensitive to the prevailing economic climate, so could be more attractive if times are prosperous.   

Higher quality bonds, issued by governments and large companies, known as ‘investment grade’ bonds, tend to be more sensitive to interest-rate fluctuations. These will decline in price as interest rates rise, making them better value. This is what we’ve seen in markets recently, with interest rate rises causing a sharp c.25% drop in bond prices.

How our investment experts manage the risk of investing in bonds

With any investment there is always the risk that you may not get your money back, which is why it’s important to seek expert advice. Our Investment Managers have access to deep and quality research from our Fixed Income Credit Committee, which means we will only look at companies which we believe can service their debt and repay bondholders – companies that can operate successfully in the current economic environment and have healthy balance sheets.

How can I invest in fixed income?

Fixed income investing is an important part of a diversified portfolio. However, depending on where you are in life and what you’re looking to achieve, the approach you take and types of fixed income investments you make are important considerations.

Our Investment Managers can review your situation and advise on the best way forward, whether it’s investing directly into bonds, via funds, exchange traded funds (ETFs) or investment trusts.

Our experts will also see whether it’s suitable for you to have a portfolio made up entirely of fixed income investments. There are various strategies available which can be useful when thinking about income needs in retirement and later life.

Can fixed income investing be a useful part of tax planning?

Yes, fixed income investing may be a useful tax planning tool although you should speak with a professional tax adviser about your individual circumstances. While bond returns are subject to income tax, both ‘qualifying’ corporate and government bonds (gilts) are free of capital gains tax for UK individual investors.

Is now a good time to invest in fixed income?

Fixed income investing becomes more attractive at times of rising interest rates which cause a drop in bond prices and thereby a rise in bond yields. For example, in 2021, an investment grade sterling corporate bond portfolio yielded c.3.75%. Now it’s yielding c.6% which offers an appealing alternative to investing in ‘higher risk’ equities and other asset classes.

Speak to a fixed income investment expert

If you’d like to find out more about how fixed income investments could help you achieve your financial goals, get in touch with us on or request a free, no-obligation consultation. Depending on your situation and attitude to investment risk, we’ll devise an investment strategy to work for you and your income requirements.

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Investment involves risk. The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested. Past performance is not a reliable indicator of future performance.

The information provided is not to be treated as specific advice. It has no regard for the specific investment objectives, financial situation or needs of any specific person or entity.

This is not a recommendation to invest or disinvest in any of the companies, themes or sectors mentioned. They are included for illustrative purposes only.

The information contained herein is based on materials and sources deemed to be reliable; however, Adam & Company makes no representation or warranty, either express or implied, to the accuracy, completeness or reliability of this information. Adam & Company is not liable for the content and accuracy of the opinions and information provided by external contributors. All stated opinions and estimates in this article are subject to change without notice and Adam & Company is under no obligation to update the information.

Photo of Dugald Barne

Dugald Barne

Investment Director

As an Investment Director, Dugald is primarily responsible for managing portfolios for private clients, pension funds and charities on a discretionary basis.

Dugald has over 27 years of investment experience. Prior to Adam & Company, he worked in portfolio management for stockbroking firms in London and Glasgow.

Dugald holds a Master's degree in History and an MBA from the University of Edinburgh. He is a Fellow of the Chartered Institute for Securities & Investment (CISI) and holds the CISI Diploma.

+44 (0) 131 380 9508

Investment involves risk and you may not get back what you invest. It’s not suitable for everyone.

Investment involves risk and is not suitable for everyone.