What Is Fixed Income? Definition and Types

What Is Fixed Income?

By Matthew DiLallo – Updated Aug 7, 2025 at 10:33 PM EST

Key Points

Investors buy fixed income for stable income and principal return at maturity.
Direct purchase and funds are two ways to add fixed income to portfolios.
Adding fixed income generally lowers portfolio volatility and potential returns.

Fixed income is an investment that pays a fixed amount on a set schedule until maturity. Fixed-income investments tend to be lower risk than equity investments. The returns are also often lower and usually only consist of fixed-income payments.

Here's a closer look at fixed-income investments and why investors might want to hold them in their portfolios.

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Data source: Vanguard. NOTE: Return data from 1926-2021.

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As the table shows, adding fixed income to a portfolio can reduce downside volatility and years with a loss in exchange for a lower average annual return.

Because of their stability, many financial advisors recommend that an investor have some fixed income in their portfolio. They have traditionally recommended a 60/40 portfolio (60% stocks and 40% fixed income) because that offers an attractive return profile with lower downside risk compared to portfolios with higher stock allocation. Meanwhile, they often advise investors to increase their exposure to fixed income as they approach retirement.

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About the Author

Matt DiLallo has been a contributing Motley Fool stock market analyst specializing in covering dividend-paying companies, particularly in the energy and REIT sectors, since 2012. He also covers pre-IPO companies, ETFs, and other investing topics. He holds an MBA from Liberty University.

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Matt DiLallo has positions in iShares Trust - iShares 0-3 Month Treasury Bond ETF. The Motley Fool has positions in and recommends iShares Trust - iShares 0-3 Month Treasury Bond ETF. The Motley Fool has a disclosure policy.