What is the difference between fixed income and variable income?
Discover once and for all the difference between fixed income and variable income!
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Those who are starting to invest often do not know what the main difference is between fixed income and variable income.
But to get good results, it is essential to understand the main characteristics of each of these investment groups. After all, there are significant differences between fixed income and variable income.
It doesn't matter if you want to invest in the stock market or have a more conservative profile: it is essential to understand how these two types of investment work.
This way, you will be able to find financial products aligned with your goals, in addition to building a more profitable portfolio of assets.
With this in mind, we have prepared an article to explain what fixed income and variable income are and the main differences between the two categories.
To understand more about the subject, continue reading!
What is fixed income?
Fixed income investments have a return rate defined at the time of contracting.
That is, when making applications in products fixed income, the investor can have more predictability regarding income.
When you purchase the title, all essential criteria regarding the investment will be established, such as profitability rate, maturity date, minimum investment amount, liquidity, among others.
There are three categories of fixed income investments:
- Fixed-rate securities: Prefixed bonds have a fixed interest rate. In other words, at the time of contracting, you already know exactly how much you will receive on the maturity date.
- Fixed-rate securities: In this case, profitability is calculated based on a market indicator or index, such as Selic, CDI and IPCA.
• Hybrid securities: are the applications that combine the two types of profitability.
The main fixed income investments are Tesouro Direto, CDB, LCI/LCA and debentures.
What is variable income?
Fixed income is a type of investment that does not guarantee profit or return of the amount invested.
This means that the investor can make or lose money, as the value of the asset may rise or fall during the invested period.
These products are linked to assets with a lot of fluctuation, which are priced based on supply and demand.
For this reason, they are higher risk investments, in which profitability varies according to the market.
As you can see, there is a possibility of losing money due to depreciation. On the other hand, the gains can be greater than with fixed income.
The main investments of variable income are shares, real estate funds, ETFs, BDRs and investment funds.
What is the difference between fixed income and variable income?
In fixed income, the investor knows exactly what the investment profitability calculation is.
Therefore, fixed income offers more security and predictability.
In variable income, the price of assets fluctuates much more frequently. There are several factors that influence the performance of variable income assets, such as interest rates and the country's economy, for example.
This means that one of the main differences between the two investments is the risk, which is much higher than in variable income.
However, it is important to mention that fixed income also has certain risks, although they are lower. For example, there is a risk that the issuer will not fulfill the obligation assumed.
Fixed income vs. variable income: which is the best option for me?
Both fixed income and variable income have certain advantages.
With fixed income, there is more security. With variable income, the chances of obtaining higher returns are higher.
But the truth is that there is no exact answer as to which investment is better, as there are several factors that influence this decision.
Find out more about them:
1. Investor profile
The investor profile is a type of analysis that identifies your preferences and risk tolerance in the world of investments.
Basically, there are three investor profiles:
• Conservative: The conservative investor does not tolerate risks. He gives up a higher return, as his priority is to protect his financial assets.
• Moderate: The investor with a moderate profile is willing to take more risks, but without giving up security. In other words, he seeks to balance the risk-return relationship. The moderate profile is the one that normally prioritizes asset diversification.
• Bold/aggressive: The bold person has a high tolerance for risk. Obviously, this does not mean that he accepts taking risks without purpose. The point is that he is willing to give up security if there is a possibility of obtaining excellent returns in the long term.
2. Financial goals
As important as knowing the investor profile is setting financial goals.
What do you really want to achieve by investing? Are you planning to take a trip, buy a car or prepare for retirement?
We all have short, medium and long term goals.
By understanding what you really want to achieve, it becomes easier to create investment strategies.
3. Investment diversification
Diversification is essential for you to keep your portfolio balanced and find good opportunities.
Diversification, basically, is the process of distributing resources between investment classes and financial assets.
Having a portfolio made up of fixed income and variable income assets helps to minimize risks.
The goal is not to diversify just for the sake of it. After all, it’s not enough to just invest – you also need to monitor your investments frequently and know which options are most aligned with your investor profile.
That's why, by diversifying your portfolio, make sure you can track all your applications.
Conclusion
Now you know the differences between fixed income and variable income.
Both investment groups have certain advantages. In fact, there is nothing stopping you from investing in both fixed income and variable income!
With short, medium and long-term strategies, you can adapt your investment portfolio to your financial goals and increase your assets!
