Fixed Income Investments

Bonds and other fixed-income investments don't enjoy the publicity of stocks. But their relative predictability can potentially help balance stock market risk and reduce volatility in your portfolio. Whether you're a newcomer to investing or approaching retirement, you may wish to consider the merits of fixed-income investments. By definition, a fixed-income investment is any that pays a predetermined (fixed) regular rate of return until it matures. Bonds, which are essentially fancy IOUs, are the most notable example. Money market instruments are also a type of fixed-income investment.

Much To Learn
If you think you need to learn more about fixed-income investments, you're not alone. In a 1999 study of retirement plan participants, 87% didn't realize that short-term securities (maturing in one year or less) are in a money market fund. * In addition, 42% didn't think they could lose money in a bond fund and 60% didn't think loss was possible in a government bond fund; both answers are incorrect. While fixed-income investments may be predictable, they're not risk-free. There's the possibility that the bond issuer may default on its payments, although this occurs infrequently. Another notable risk relates to inflation--if it increases, the fixed income of your investment loses some of its buying power because its rate of return remains the same rather than keeping pace with prices.

Types Of Fixed-Income Investments
A variety of fixed-income investments are available:

• Money market instruments are short-term (one year or less) debt securities. Because of the generally high credit quality of money market debt and its short term, this is among the least risky of fixed-income investments.
  
  
• Treasury securities or "Treasuries" are bonds issued by the U.S. Treasury Department in maturities ranging from three months to 30 years. The interest on Treasuries is exempt from state and local tax. Since the federal government issues them, Treasuries have very low risk.
  
  
• Government agency securities are issued by agencies of the U.S. Government, such as the Government National Mortgage Association (Ginnie Mae). Unlike Treasuries, they are not government-guaranteed.
  
  
• Municipal bonds are issued by state and local governments. Most municipal bonds are exempt from federal tax and many are also free of state and local tax.
  
  
• Corporate bonds are issued by corporations. Your rate of return will depend on the creditworthiness of the issuing corporation. They are fully taxable.
  

A Better Way To Buy
It's easier to select individual stocks than bonds. Why? For one, the number of stocks available to investors numbers in the low five digits; with bonds and other fixed income investments, it's in the millions. Second, while much information is publicly available on stocks, it is not so easily obtainable on many fixed-income investments. A professional investment manager has the best access to information and can help you select fixed-income investments appropriate for your portfolio. Or, you may decide to choose a bond mutual fund. Either way, one of our investment professionals can help you put together a portfolio that matches your goals, risk tolerance and timeline.

* John Hancock Financial Services' survey of 801 401(k) plan participants, ages 25 to 45, 1999.

*Investment services offered through Union Bank & Trust Company’s Trust Division.
Investment products: Not FDIC Insured - No Bank Guarantee - May Lose Value.