Fixed income investing

Mitigate risk, diversify from equities, or find new avenues for income in your portfolios

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What is fixed income?

Fixed income investments, or bonds, are simply loans to a corporation, municipality or government agency.

  • The borrower gets the cash they need.
  • The lender earns interest for the term of the loan.
  • The borrower promises to pay a specific interest rate regularly until the loan matures.
  • This steady, predictable stream of interest is why bonds are called “fixed income”.

Other examples of fixed-income investments include: Guaranteed Investment Certificates (GICs), investment contracts, mortgage-backed securities, and savings bonds. A convenient way to invest in bonds and diversify your bond portfolio is through a fixed income mutual fund.

Whether you’re looking to mitigate risk, diversify from equities, or find new avenues for income in your portfolios, fixed income can be your solution. From investment grade credit to liquid alternative strategies, discover the full offering of our fixed income solution set.

"There is an inverse relationship between bond market values and prices versus interest rates and yields."

As a general rule, when interest rates and yields rise, bond market values and prices fall. This means that bonds—particularly longer-term bonds—are highly susceptible to economic environments with rising interest rates.

Move the above levers up or down to see the relationship in action.

Four key advantages to investing in fixed income

There are advantages to consider when including fixed income assets into your investment portfolio:

ADVANTAGE 1

Diversify your equity exposure

Fixed income assets generally react in a different manner than equity to market events, providing an effective diversifier to your equity exposure.

ADVANTAGE 2

A source of income

Fixed income assets can be a source of income through interest or dividend payments.

ADVANTAGE 3

Help protect your principal

Fixed income assets generally retain their value over time as they are less likely to suffer large drawdowns.

ADVANTAGE 4

Smoother return profile

Through diversification and smaller drawdown potential, adding fixed income assets can help smooth out the returns of a portfolio.

How to invest in fixed income?

Fixed income still plays a key role in any portfolio—offering diversification, stability, and income potential. Our next generation of fixed income strategies takes advantage of global geographies, sectors, and third-party specialists to help enhance your returns.

A short-term fixed income solution for conservative investors seeking an alternative to money market or high interest savings accounts that invests primarily in Canadian fixed income.

Russell Investments Short Term Income Pool

A core fixed income solution providing effective diversification against equities and a stable level of cash flow that invests primarily in Canadian fixed income.

Russell Investments Fixed Income Pool
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Provides exposure to Core, Plus and Liquid Alternatives strategies which aim to generate incremental returns. The Core component invests in Russell Investments Fixed Income Pool (45%), the Plus (47%) and Liquid Alternatives (8%) components invest in specialized strategies designed to generate incremental returns.

Russell Investments Fixed Income Plus Pool
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A fixed income solution providing diversification through a broad range of global fixed income securities, and access to increased returns commensurate with the increased risk.

Russell Investments Strategic Income Pool

RUSSELL RESEARCH

Insights and research from our key thought leaders

INVESTING

eitelmanrising

JANUARY 14, 2025

PAUL EITELMAN, CFA

What's behind the sharp uptick in U.S. Treasury yields?

INVESTING

DECEMBER 10, 2024

ANDREW PEASE

Navigating markets in 2025 will demand more than relying on conventional wisdom about U.S. outperformance and global headwinds. 

INSTITUTIONAL

fixed income survey

NOVEMBER 12, 2024

MIGUEL OVALLE

Dig into the findings of Russell Investments’ fixed income survey for 2024-2025, showcasing the views of institutional managers on the market. 

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FAQs

Bond ratings are representations of the creditworthiness of corporate, federal or provincial government bonds. The ratings are published by credit rating agencies, such as Moody’s, S&P and Fitch. These rating agencies generally use letter classifications, such as AAA being the highest quality bonds, with minimal risk—through to C or D ratings being riskier investments, with potential default. These ratings provide evaluations of a bond issuer's financial strength and capacity to repay the bond's principal and interest.

There are many ways to invest in fixed income securities. Examples of fixed income securities include provincial and federal (Government of Canada) bonds, foreign bonds, corporate bonds, Guaranteed Investment Certificates (GICs), money market funds, investment contracts, mortgage-backed securities, and Canada Savings Bonds.

Benefits include diversifying your equity exposure, providing a source of income, helping to protect your principal, and a smoother return profile.

The stock market is generally considered more volatile, however bonds carry their own forms of risk. The most significant ones are interest-rate risk and credit quality risk. The biggest risk of a bond investment is if the issuer goes bankrupt, the loan may not get paid back. In bankruptcy cases, bank lenders have the first claim on any assets that the bankrupt company may have. But bondholders have a higher claim than stockholders, which is one reason bonds are generally less risky than stocks. The risk of bonds varies with maturity because the possibility of gains and losses varies with the length of time interest and principal payments are exposed to market rate fluctuations.

Maturity is the time until a loan is repaid—and is a factor determining a bond’s income, as well as its volatility. Bonds are categorized as: Short-term, usually five years or less; Long-term, 10 years or longer; or Medium-term, between 5 and 10 years. Duration is a more precise calculation of the “effective life” of an investment. Compared to maturity, which only deals with the date when the principal is finally repaid, duration also reflects the amount and frequency of all payments, as well as today’s price. Duration is an estimate of a bond or bond fund’s sensitivity to interest rates.

Our approach brings the world's leading managers and strategies together—in a diversified, adaptive and efficient portfolio—aimed at achieving investors' goals.

For the use of an investor's money, the borrower promises to pay the investor a specific interest rate on a regular basis—hence the phrase fixed—for a set period of time and until the maturity day of the bond. This steady, predictable stream of interest is why bonds are referred to as "fixed income" investments.

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