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Fixed Investment is an investment with a fixed or stated return in the form of interest as with a CD, bank savings account or a guaranteed investment contract. Fixed investments typically do not incur losses in principal.
Synonym: interest-only investment
For context, many presume bonds fall under the definition of fixed investment without realizing that bonds can suffer principal losses, particularly when interest rates rise. For nearly four decades interest rates have been on a downward trajectory, so investors lose sight of the fact that bonds in fact historically come with more risk than investors have experienced. This potential for loss of principal is the distinction between fixed investments and fixed and variable investments. It's a subtle distinction, but an important one.
Doc: A fixed investment is
suitable for people or institutions seeking stability of principal.
Lia: Will you explain why some in 2016 accepted negative interest rates? Isn't that a loss of principal?
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Still unclear on the Fixed Investments? Check out our series on financial modeling in Excel called Quant 101.
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