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Fixed Income

The investment goals of the ultra-affluent individuals we serve at Paragon Capital Management, LLC are significantly different than those of typical investors. Capital preservation, tax-advantaged strategies, and a steady stream of cash flow are what many of our clients are seeking, and what Paragon Capital Management, LLC provides through our fixed-income investment strategies.

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What Are Fixed Income Securities?

Fixed income refers to debt securities that can provide a steady stream of interest payments or dividends along a fixed schedule, hence the name "fixed income." The underlying debt security can be issued by many different types of organizations and is often used to fund a specific purpose.

Fixed-income investments are typically given preferential treatment over common stockholders if the debts become more than the issuer can maintain. While there are many different types of debt-based securities, they all maintain priority in bankruptcy proceedings over the owners of common equity shares.

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Types of Fixed-Income Investments

There are many different types of fixed-income products, with each offering its own advantages and disadvantages. Treasury securities have provided the majority since 2012 and made up 37% of the fixed-income market in 2019. While they are the most popular, they are far from the only type of fixed-income securities.

Benefits of Fixed Income Investing

Investment advice will often place fixed income as merely an afterthought because it's far easier for some to sell their clients on the appeal of stocks or emerging markets that could have higher returns (and high transaction costs that go to the financial advisor).

At Paragon Capital Management, LLC we custom-build portfolios for each individual client, and fixed-income strategies provide a possible solution to reach their goals. Let's go through some of the reasons why our ultra-affluent clients often prefer fixed-income strategies.

Potential Risks of Fixed Income Investments

While fixed-income products are mostly considered "safer" than some other asset classes, no investment is perfectly safe. Let's go through some of the potential risk factors that must be considered with fixed-income investing.

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Credit Risk or Default Risk

Corporate bonds may not have the guarantee of the government or FDIC, but do offer preferential treatment for debt holders over common stockholders if a firm cannot meet its debt obligations. US-based companies that issue debt have debt ratings, through which their required interest rates are determined, and investors can judge the credit risk for themselves. AAA rating is considered an investment-grade bond, while BB and below are considered high-yield (junk) bonds.

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Interest Rate Risk

With fixed-income solutions, there is an interest rate risk that an investor will purchase a bond or bill, and the interest rates rise above its rate. This will cause the value of the instrument to lower in the secondary market, and the investor will be locked into that rate for the duration. The risk is not that the investor will lose money, but will lose out on an opportunity to gain a higher rate - although a laddering strategy will still take advantage of the higher rates when the oldest bond matures.

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Inflation Risk

Except for Treasury Inflation-Protected Securities (TIPS), fixed-income investments do carry inflation risk. There is a chance that inflation rises higher than the fixed rate during the investment's life. A proper laddering strategy, however, will maintain a balance of short, medium, and long-dated investments, which will provide opportunities to get newer, higher-rate securities at regular intervals.

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Building Your Fixed Income Portfolio with Paragon Capital Management, LLC

The current market price volatility within the stock markets has been a rude awakening for many investors who have only invested during a bull market. It has sent many seeking a safe haven, with some even moving all of their investable assets into money market funds and other places where the interest gained is extremely low, but they feel their savings are safe.

If you are an ultra-affluent investor who meets our investment minimums, our team at Paragon Capital Management, LLC would love to walk you through our fixed-income investing philosophy to explain how we build the future foundations of our clients' legacies.

Our portfolios are custom-built according to each client, their risk tolerance, and their investment goals. Those who meet our investment minimums are given access to unique products that are custom-built hand-in-hand with the some of the largest investment banks due to our institutional relationships with them.

The right fixed-income portfolio can provide a wealth of benefits on its own or as part of a diversified asset allocation. Contact our fixed-income team at Paragon Capital Management, LLC, and allow us to build a portfolio that is customized to help you achieve your goals.

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Whether you feel as if you’ve outgrown your advisor or you just want a fresh perspective on portfolio strategies in our current market, our team of experts is here for you.

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