How fixed income investments can help build wealth over the long term
Role in diversification Fixed income investments are currently offering attractive interest rates ranging from 8.5% to 9.36% annually, nearing an all-time high for FD (fixed deposit) rates in India. As investors strive for financial success and stability, many adopt a balanced approach in their portfolios, allocating approximately 50% to stocks and 50% to fixed income. This balanced approach aims to mitigate risk and enhance long-term returns.
Diversification is essential for minimizing risk in investments. Fixed income investments, like fixed deposits and bonds, play a unique role in this strategy by offering low volatility and steady income, which balances the fluctuations of higher-risk assets like equities, leading to overall portfolio stability. Uniquely diversifying one’s portfolio is prudent for risk management, but concentrated strategies offer potential for higher long-term growth.
However, they come with increased risk, and finding the right balance between diversification and concentration is crucial for individual circumstances. Fixed income strategies The barbell strategy coined by Nassim Nicholas Taleb, is a distinct approach to the above-mentioned risk management. When implementing the barbell approach in fixed income portfolios, investors are advised to combine short-term investments with longer-term ones.
Additionally, the strategy can be extended to a broader wealth portfolio. Such a portfolio might consist of a well-balanced combination of ultra-safe investments, index funds that track major markets, and alternative investments strategically aimed at achieving significant returns. On the other hand, the laddering strategy is a time-tested method used in fixed-income investing to reduce risk and take
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