Fixed income investments are usually low risk and include quality fixed income securities and cash.
They have an unassailable role in goal-oriented wealth management, which is to meet near-term goals such as medium-sized purchases. They are different from higher risk assets like global equities and high yield bonds. These are also included in wealth management, but are used to fund longer term goals because of the higher return premium on equities.
However, while fixed income investments are low risk, that does not mean they are risk free. Risks that could undermine their performance are inflation, default by issuing institutions, rising real interest rates, taxation, and lack of liquidity. Because principal amounts are used primarily to meet near term needs, it is absolutely crucial to protect them from these risks, offering a positive return even in distressed economic times and despite taxes and inflation.
Ultimately, no single fixed income asset can achieve this on its own. That’s why a mix of fixed income assets is appropriate. A good mix usually includes inflation-protected treasuries, liquid securities, tax-efficient bonds, and low duration investment grade bonds, to mitigate real interest rate risk. The risk of default is kept to a minimum by selective preference for assets with high credit quality.
