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Understanding fixed income, its functionality, and determining its investment value are essential for beginner investors.
Fixed income has become slightly less appealing to Brazilians because of the decrease in the Selic rate, but it still presents a viable investment opportunity.
The pandemic crisis has had a lasting impact, leading to a decrease in global asset prices and increasing awareness about finance, investment, and the importance of emergency funds.
Fixed income remains a viable option. What is fixed income, and when is it a good investment? Find out more about it in this article!
What does fixed income refer to?
Investments in fixed income are typically intended to produce a specific, unchanging level of interest income, hence the name “fixed income.”
If you have a moderate or conservative profile, or if you are new to investing and hesitant about investing in stocks, fixed income can be the most secure option for your money.
Investing in securities like fixed income assets has been an effective method to generate a steady income and other advantages for a varied investment portfolio.
Fixed-income investments are investments that offer regular and usually predetermined payments, commonly in the form of interest payments or dividends, and their value and payment timing do not change.
When is it a good idea to invest in fixed income?
Investing in fixed income during a period of low interest rates requires establishing appropriate expectations.
Some fixed-income investments offer higher returns, while others such as savings may not provide as much income.
In certain situations, it might be suitable to assume greater risks. It is crucial to comprehend these risks and their potential impact on one’s overall investment objectives.
After numerous reductions in the Selic rate, fixed income investments have somewhat diminished in appeal to a number of investors. However, it should be acknowledged that fixed income offers a variety of options, including products with different levels of profitability.
However, we are not merely discussing saving, as the realm of fixed income encompasses a wide range of options such as LCIs, LCAs, Funds, ETFs, Debentures, Real Estate Crowdfunding, Financial Letters, CRIs, and CRAs, among others.
When considering investing in fixed income, it’s important to assess the duration you plan to keep your money invested and the level of liquidity required for potential redemptions.
Discover your investor profile here before learning about the primary fixed income investments.
Take advantage of investment opportunities that align with your life goals and understand the risks you are comfortable with. Find out more by clicking here.
When you begin investing, money should work for you, not the other way around.
Discover the primary fixed-income investment options.
1. Certificate of Deposit
Bank Deposit Certificates (CDBs) are among the oldest financial instruments offered by banks to individuals and businesses.
The investor in CDBs lends money to the bank and receives a fixed interest rate until the investment matures, which can range from short to long term.
The primary concern is the potential decrease in profitability if the investment is cashed in prematurely, and the risk of loss if interest rates or other indexes increase after the agreement is made.
LCI and LCA are mentioned in the second paragraph.
From an investor’s perspective, there is no distinction between investing in LCI or LCA; the difference lies in the underlying security of the investment. Both LCI (Real Credit Act) and LCA (Agribusiness Credit Act) are fixed-income choices linked to the CDI.
Learn about the specifics of LCI and LCA by checking out this article.
Public designations
Public bonds are fixed-income assets that are deemed the safest investment in the economy as they are fully backed by the National Treasury.
When purchased, the buyer provides resources to the government and receives future compensation for this transaction. In Brazil, the public bond market, valued at over 5 trillion reais, is a significant investment option for both local and global investors.
One popular method to obtain public bonds is through the Direct Treasury, among other available options.
What does the Direct Treasury refer to?
The Direct Treasury is an online public program for individual title sales, established by the National Treasury in collaboration with BM&FBOVESPA. It offers a secure fixed income investment option for those looking for peace of mind.
The Direct Treasury offers various public title options from the National Treasury, including the Prefixed Treasury, the IPCA Treasury, and the Selic Treasury.
Treasure that is fixed at the beginning
The Treasury Prefixed guarantees a fixed income where the amount to be received in the future is known at the time of purchase. Each unit of the Treasury Prefixed is set to pay out 1000 reais in the future, ensuring a set profit based on the initial purchase price.
The Prefixed Treasury is ideal for individuals seeking secure and short-term investment options. It is particularly suitable for investors who can hold the investment until maturity as it does not provide semi-annual interest payments.
Treasury inflation-protected securities
The IPCA Treasury is a type of fixed-income investment that is linked to Brazil’s main inflation rate, the IPCA, making it a reliable option to protect your money from losing value over time.
It can lead to significant profits, but it will not make you wealthy. Instead, it will protect your funds and enhance the variety of your investments.
Treasury Selic is being referred to.
The Selic Treasury is a type of investment where the return is determined by the accumulated variation of the Selic rate between the purchase settlement and expiration dates, making the final yield uncertain at the time of purchase.
The payment is determined by the change in the Selic rate and an extra charge.
The Selic Treasury is a suitable choice for conservative investors looking to establish an emergency fund or increase diversification among fixed-income investments, as it is less risky compared to other options.
Debentures are a form of debt securities.
The investor seeking a more lucrative option than traditional fixed income choices in their portfolio should consider private credit products like debentures, in addition to public bonds.
Investors should take into account credit risks and deadlines when considering these investments. Returns are linked to the CDI or other indexes, suitable for medium to long-term investment with inflation protection for IPCA indexes.
Crowdfunding in real estate involves raising funds from multiple investors for property projects.
Fixed income includes various options beyond conservative assets and the Selic rate, such as different deadlines and investment platforms like real estate crowdfunding, which offer higher profitability opportunities.
You can invest your money in real estate projects either through owning a share of the assets (equity) or providing a loan (debt) in return for a portion of the profits generated from the project.
The primary appeal of peer-to-peer lending for real estate investments is that it allows newcomers to take part in lucrative and complex real estate ventures.
Collective financing, like with INCO, attracts investors with minimum contributions ranging from R $ 500 to R $ 1000, offering returns between 11.5% and 14% annually, averaging at 13.2% per year based on various factors. Read more about this in the article provided.
Increasing your profitability can be achieved through having a variable income.
Investing in variable income can be a good way to diversify your portfolio and aim for higher returns compared to fixed income assets. In 2020, there was a 92% increase in the number of investors in B3, indicating a growing interest in variable income investments.
Investing in actions can be risky in the short term, so diversification is crucial for the future of your investments.
To discover more about the key distinctions between fixed income and variable income, click here.
Look out for changes in fixed income.
Consider adhering to high-quality bonds instead of pursuing income and risking lower credit quality bonds to use fixed income as a stabilizer against stock market downturns. Be cautious as fixed income bonds are influenced by the fluctuations in the financial market.
Lower-quality assets with higher returns typically move in the same direction as stock prices, reducing their effectiveness as diversification tools.
High-quality bonds typically have minimal or negative connections with stocks, and they usually increase in value when the stock market experiences significant declines.
Diversify your investment portfolio.
It is important to have a mix of variable and fixed income investments to reach your financial objectives. When seeking diversification, focus on high-quality, long-term securities.
Diversification and asset allocation do not assure profits or prevent losses. Hence, every investor should prioritize financial education.
Investing in fixed income is the most secure choice.
Fixed income investment involves low-risk options with predictable returns, such as government bonds. While these investments are relatively safe, they may be impacted by inflation and typically do not yield significant capital appreciation. It is essential to consider the purpose of adding fixed-income assets to your portfolio, focusing on generating a steady income stream and ensuring diversification.
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