Fixed Income Security

What it is:

A fixed income security is an investment that pays regular income in the form of a coupon payment, interest payment or preferred dividend.

How it works/Example:

Fixed income securities provide periodic income payments at an interest or dividend rate known in advance by the holder. The most common fixed-income securities include Treasury bonds, corporate bonds, certificates of deposit (CDs) and preferred stock.

Holders of Treasury bonds and CDs receive a fixed interest rate based on a par value over a specific period of time. Holders of preferred stock are entitled to a periodic fixed dividend specified by the issuing company for as long as they own the shares.

To illustrate, suppose an investor owns a Treasury bond with a par value of $1,000 and an annual yield of 6%. This investor is guaranteed a payment of $60 each year for the life of the bond. Similarly, an investor who holds preferred stock in Company XYZ might be promised a quarterly dividend payment of $5 per share, which he can dependably receive for as long as he holds the shares.

Why it Matters:

Fixed income securities are an excellent choice for risk-averse investors seeking a stable source of income payments at predictable intervals. Fixed income investors and prospective investors should understand that the relatively low risk of fixed income securities generally translates into relatively lower returns.

Best execution refers to the imperative that a broker, market maker, or other agent acting on behalf of an investor is obligated to execute the investor's order in a way that is most advantageous to the investor rather than the agent.