Introduction

When talking about financial investments, it is common to hear about two different types of income: fixed income and variable income. Both options are alternatives to achieve benefits, but how are they different?

Fixed rate

Fixed income is a type of investment in which a previously agreed profitability is established, without its income varying during the time in which it has been contracted. In this type of investment, money is loaned to an entity that promises to return the borrowed capital on a certain date, along with the agreed interest.

• Corporate bonds: They are issued by companies to obtain financing and offer a fixed income
• Government bonds: They are issued by governments and are considered low risk, since their support is the State
• Fixed term deposits: They are an option offered by financial institutions that consist of the placement of capital for a specific period with a fixed income.

Variable rate

Variable income is an investment in which profitability is not pre-established, since it depends on the fluctuation of financial markets. Investors who choose this type of investment acquire shares or stakes in a company, in order to achieve a return at long term through the revaluation of the acquired securities.

• Actions: represent a proportional part of the social capital of a company and its profitability depends on the evolution in the stock market
• Investment funds: allow you to invest in various assets, such as stocks, bonds and other financial instruments
• Derivatives: They are financial instruments that allow you to achieve profitability or reduce market risk in investing in variable income.

Main differences

The main difference between fixed income and variable income is the degree of risk they present. Fixed income is considered a safer investment, since it is guaranteed that the capital invested will be recovered. Instead, in the rent variable, profitability is not guaranteed and depends on external factors.

Some additional differences are:

• In fixed income, the profitability is known in advance, while in variable income it is variable and fluctuates according to the market.
• Fixed income is suitable for investors looking for a more conservative profile, while variable income is recommended for investors with a riskier profile and looking for greater profitability.
• Fixed income usually offers short-term returns, while equities offer long-term returns, but with greater uncertainty.

Conclusion

In summary, the choice between fixed income and variable income will depend on the investor's profile, their strategy and their objectives. While fixed income offers known security and profitability, variable income offers higher profitability, although with greater risk. It is important to carefully analyze the options and, if in doubt, seek advice from an expert in the field.

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