1. What are the fixed income investments we should consider? Why?
Bonds - A bond is a debt security in which the bond holder may receive periodic coupon payments (interest) and the principal at the end of maturity. If the bond is a coupon bond, then the coupon payments will be made at fixed intervals, the most common being semi-annual. Corporate bonds are usually considered to be safer than stocks because bondholders have a higher claim on assets because they are considered as creditors to the corporation. There are different types of bonds to choose from, for example, government bonds are as safe as the issuing country. If the Barrows are worried about the market and losing their investment, they can consider a government bond. Government bonds can be purchased online easily. However, if the Barrows desire a higher rate of return, they can go for a long term corporate bond. The downside is the increased risk.
Preferred Stocks - A preferred stock is another form of ownership within a corporation, like those of the common stock. However, a preferred stock is different from common stock as it acts like a corporate bond in which it yields a constant fixed dividend. The prices for preferred stock fluctuates a lot less compared to common stock, but are affected by the interest rates, where an increase in interest rate would decrease the price of the preferred stock and vice versa. The people that prefer to purchase preferred stock are those who do not want to deal with the high risks of common stock or locked into long-term bonds.
Pension - Pension is the payments a person receives upon retirement, usually under pre-determined legal and/or contractual terms. The most common type of pensions would be the employee-based pension and the state/local pension. A pension created by an employer for the benefit of an employee is typically referred to as an occupational or employer pension, which is also known as the employee-based pension. Usually, it would require...