Fixed income typically describes investments that generate predictable and stable income over time. Common fixed income securities include bonds, treasury notes, and certificates of deposit. These investments are deemed safer compared to equities, as they generally provide guaranteed payments according to their terms. For instance, when an investor buys a bond, they are effectively lending money to an issuer (such as a company or government) who, in return, agrees to pay periodic interest until the bond matures, at which point the principal amount is repaid.

An example of fixed income usage could involve a retiree purchasing bonds to secure stable income during retirement years. Financial planners often include fixed income investments in portfolios to reduce risk and ensure a steady cash flow. While fixed income investments come with relatively lower risk, they also offer lower returns compared to more volatile asset classes such as stocks, reflecting the trade-off between risk and income stability.

Including a mix of fixed income securities in a balanced portfolio, alongside equities and other investments, can provide diversification and reduce overall investment risk.