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> when people talk about fixed income, they refer to the low risk government one I am sorry to say this is incorrect. No knowledgeable person will refer fixed
by akg_67 11y ago
> when people talk about fixed income, they refer to the low risk government one
I am sorry to say this is incorrect. No knowledgeable person will refer fixed income as "low risk government one". Fixed Income covers a broad range of assets that are typically debt-based, non-equity based that generate periodic payments/interest. This includes Government Bonds, Corporate Bonds, and other debt securities (Real Estate, Consumer Loans, Invoice Financing, come to my mind). Fixed income is a very large and complex (much more than equities) field and calling it as just "low risk government one" is a disservice to the field.
> According to Markowitz, you buy fixed income as "risk free" asset, to offset an optimal portfolio of risky assets.
I would like to see reference that attributes this to Markowitz. Markowitz's Capital Asset Pricing Model (CAPM) refers to "risk-free" rate but never specifies if fixed income equates to risk free. There is no risk-free assets. Anything close to being considered "risk free" is very short-term (not long term) government paper issued by US, UK, Germany, Switzerland and Japan.
- harperlee 11y agoYes, sure, it was a simplification. And probably not Markowitz paper will display verbatim "you buy fixed income as "risk free" asset". But I think you're nitpicking. Markowitz defined the Modern Portfolio Theory as working with risk-free assets. Sure, that does not exist. But there are approximations. FI is normally used as such. Also: > No knowledgeable person will refer fixed income as "low risk government one". Being knowledgeable is not something binary, and you have lots of people in the internet talking about holding stocks and bonds. Whenever you see investment advice stating "hold your age as percentage of FI", they are not referring to junk bonds, nor securitizations or whatnot. They are talking about low risk, low yield, typically government bonds. EDIT: Context is also to consider. In some contexts, people equate both things. In any case, rereading my post, it now sounds a little bit defensive, so sorry for that.