A fixed income investment is usually a bond. It is a financial instrument that pays consistent cash flows on the invested principal. These cash flows are known in advance. At maturity, the bond’s principal is paid back to the investor and cash flows cease. Fixed income is not as volatile as equities (i.e., stocks). Preservation of capital is one of the main reasons people invest in fixed income, especially retirees. However, because cash flows are fixed, investor income can be eroded by increasing inflation. Also, there is a risk the bond can be called before maturity, discontinuing its cash flows.
