Fixed-rate investments vs equity investments

WELLESLEY, AN ESTABLISHED ALTERNATIVE FINANCE FIRM, EXPLAINS THE DIFFERENT INVESTMENT OPTIONS

FIXED-RATE investments are one of the most common investment options available in the current marketplace. Commonly used to diversify an investor’s asset portfolio, they help reduce the overall level of risk associated with asset allocation or investment strategy that relies on the performance of the stock market.

Fixed-rate investment options.,such as corporate or government bonds. is an investment option that pays the same level of interest over its entire term. While they are used differently from investor to investor, they are relied upon in times of economic uncertainty or to provide a steady income option alongside a market-performance investment plan.

WHAT ARE EQUITY-BASED INVESTMENTS?

Equity investments generally consist of stocks or stock funds that allow investors to hold partial stakes in companies provided through an specialist intermediary investment trust. Generally categorised into common stocks and preferred stocks, they are two similar investment options that provide investors with separate slightly different rights and returns. Common stocks grant the investor the right to claim the issuing company’s assets and receive dividends payments based on performance. Preferred stocks provide the investor with similar capabilities with less of a say in the company.

For investors, equity investment provides the opportunity for incredibly high returns on a relatively small investment. However, due to the nature of the investment, they provide investors with increased levels of risk associated with their investment.

A fixed rate bond is a long-term investment that pays a specific payment for the duration of an investment lifespan. The fixed-rate is indicated by the trust when a bond or investment is issued, alongside the specified payment dates.

Investors seeking to generate returns in a similar format to a regular income regularly turn to fix-rated investments. While it is a fantastic option for stable returns, fixed-rate investments provide investors with a number of often forgotten benefits.

Other forms of investments are often limited to a select grouping of people or investors based on the complexity of the asset or the minimum capital required to invest, however fixed-rate investments are accessible at different levels to anyone looking to invest.

Investors across the board are looking for varying ways to diversify their investment portfolio. As a stock or equity-based investment can see considerable swings in value due to external and internal factors impacting their performance on the stock market, investors turn to fixed-rate investments as a method to smooth any substantial swings in value. As high-credit quality bond prices and stock prices have historically moved independently and at different scales, they provide a method to aid the performance or protect the investor from their stock/ share-based investment.

Fixed-rate investments provide investors with a niche approach to the preservation of their capital. For investors who are conscious about receiving their investment back along with returns, fixed-rate investments offer those with the best potential.

As the original funds are protected, investors can relax in knowing they will receive some form of return back.

Performance-based and fixed-rate investments provide two separate investment avenues to investors. As the number of the investment options continue to increase, it is vital investors understand the investment options available and how they compare to one another.

Historically equity-based investments have provided investors with higher average returns than fixed-rate investment. However, due to the nature of both forms of investment, risks undertaken by investors who pursue equity-based returns are substantially higher than those who seek returns from a fixed income.

Equity investments and fixed-rate investors differ on how returns are paid. Equity investments allow investors to seek returns in several formats, for example sale and dividends payments based on performance of a stock. In comparison, fixed-rate investments are characterised on the continuing maturity of the bond they purchase until they expire.

Both equity investment and fixedrate investment provides the investor or investors with a different investment opportunity to meet their needs. Fixedrate investments provide investors with a predictable and relatively reliable source of income, with equity investments providing investors with the opportunity to receive high returns. As these investments are generally unassociated with each other, they provide investors with the capability to naturally balance their investment portfolio to reduce the levels of risk attached.

For more investment advice, head to the Wellesley website, wellesley.co.uk