Fixed income alternatives for investors seeking income and stability

When traditional fixed income products aren’t providing enough yield or diversification, some investors look to fixed income alternatives. These options can help generate steady returns even when interest rates change. They can also add diversification by relying on different income sources than public markets.

Gainbridge digital annuities can offer a straightforward way to secure predictable interest rates with built-in protection. That’s why many people turn to Gainbridge for reliable income without taking on unnecessary market risk.

With any financial product it is important to fully under the associated risks, pros, cons and how it may fit into your overall plan before making a decision.

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What are alternative fixed income investments?

Fixed income alternatives can help investors earn regular income beyond traditional bonds and cash products. They rely on sources like private lending, real estate cash flows, and insurance-based contracts rather than interest payments from public markets.

By diversifying across different sources, investors can reduce sensitivity to rate changes and market cycles. That’s what makes them a useful complement to a traditional fixed income strategy. Diversification does not guarantee profit or protect against a loss in declining markets and past performance is not indicative of future results.

Alternative fixed income investments

Here are alternative products you can use to help boost returns beyond traditional bonds.

Annuities

A fixed annuity is a contract with an insurance company that turns your contribution into guaranteed income, either for a set period or for life. Fixed and indexed annuities can be appealing because they can offer predictable income and downside protection from market volatility. This makes them popular among investors who want both security and growth potential.

Unlike bonds or certificates of deposit (CDs), which pay interest for a fixed term and return principal at maturity, fixed annuities can provide predictable income that can last a lifetime. And although fixed annuities can’t be bought and sold as quickly as bonds, they can be valuable for long-term stability and retirement planning.

Real estate investment trusts

Real estate investment trusts (REITs) are companies that own and manage income-producing properties, such as shopping centers, office buildings, and apartment complexes. They aim to generate income from rent and long-term leases and distribute some of their taxable income to shareholders — providing a potentially reliable stream of dividends.

In theory, as rents and property values rise, REIT income tends to grow, as well. This can create a natural hedge against inflation while diversifying a portfolio.

In contrast to traditional products that return principal at maturity, REIT income may increase over time but fluctuates based on occupancy rates and real estate market conditions. As a result, REITs are less predictable than fixed income but can be more resilient in higher-inflation environments.

Private credit and direct lending

Private credit involves a non-bank lender loaning money to companies or projects not listed on a public market. The lender and borrower negotiate the terms themselves rather than distributing the loan to multiple investors like a traditional bond. Direct lending is the primary method of private credit, where the lender bypasses intermediaries. This approach offers more control over loan terms while potentially earning higher returns.

Another distinction from traditional bonds is that private credit and direct lending depend on the borrower’s ability to repay, so returns can fluctuate. Because private credit is less predictable and harder to sell quickly, investors should plan for a longer holding period.

Infrastructure funds

Infrastructure funds typically invest directly in long-term, large-scale projects like highways, bridges, and airports. These investments aim to generate steady income through tolls and user fees and can adjust with inflation.

However, infrastructure investments generally require higher minimum commitments and are typically less liquid compared to traditional fixed income products. For that reason, investors may need to hold on to them for several years to fully realize returns. Despite these constraints, they can be a stabilizing element within a broader investment strategy.

Collateralized loan obligations

Collateralized loan obligations (CLOs) pool corporate loans — often to companies with below-investment-grade credit — and organize them into tranches with varying risk and return. Investors select tranches that match their risk tolerance, targeting diversification and higher yields than traditional bonds.

Senior tranches receive payments first and carry lower risk, while mezzanine and equity tranches take on higher risk but offer potentially higher returns. This tiered structure allows investors to match exposure with their tolerance.

Comparing traditional and alternative fixed income

The following table illustrates some of the differences between fixed income alternatives and traditional fixed income options like bonds and CDs. Note that liquidity does not take into account selling at a discount and early withdrawal or surrender charges. Past performance is not indicative of future results and this is for hypothetical illustrative purposes only.

Alternative fixed income strategies for portfolio diversification

Combining alternative fixed income strategies with traditional bonds can help you build a balanced and resilient portfolio. These alternatives can offer strong diversification benefits — not to mention, they can reduce portfolio volatility and smooth returns across changing market conditions. Some strategies, like REITs and infrastructure funds, also aim to hedge against inflation since their income can rise over time.

Alternative fixed income investments can often have low correlation with public markets, meaning their performance isn’t directly tied to stocks or standard bonds. This may help improve risk-adjusted returns and let you maintain steady income even when traditional markets struggle.

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Risks of alternative fixed income investments

Before choosing a fixed income strategy, pay attention to the following risks.

Liquidity constraints

Alternative investments like private credit and infrastructure funds are less liquid than traditional bonds or CDs. Accessing or selling these funds can take longer, and early withdrawals may involve penalties or restrictions. Investors should be prepared to hold these products for the long term and maintain enough liquid assets for their short-term needs.

Higher fees

Most alternative fixed income products come with higher fees than traditional bonds and cash investments. These include management and performance fees — or insurance costs in the case of annuities. Higher fees can reduce overall returns, particularly in low-yield environments, so it’s important to consider costs versus benefits.

Complexity

Alternative investments are more complex than traditional bonds due to their unique rules and payout structures. For example, CLOs and private credit loans can involve multiple layers of risk and return that are difficult to assess. This added complexity makes them harder to evaluate and requires greater investor research.

Market risk

Bond alternatives can diversify a portfolio, but they’re not risk-free. Market conditions, interest rate changes, and economic downturns can all affect returns, especially for assets like REITs and CLOs. Each investment can react differently to market cycles so it is important to understand how each product functions.

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Team up with Gainbridge for guaranteed interest

Fixed income alternatives can give you additional ways to earn steady income while diversifying beyond traditional bonds in a portfolio. They can provide more consistent returns and introduce income sources that don’t move in step with the usual fixed income market.

Gainbridge offers a variety of fixed digital annuities, including tax-deferred and non-deferred options. By buying directly from Gainbridge, you eliminate the middleman and can potentially put more money back in your hands.

You can purchase a Gainbridge annuity in typically under 10 minutes and manage your policies entirely through our online platform. But if you ever need us, our licensed agents are ready to help. Explore Gainbridge today to see how you can get guaranteed growth to help reach your financial goals.

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FAQ

What are hedge funds?

Hedge funds are private investment pools that use a range of strategies — like leverage, short selling, or alternative assets — to pursue higher returns. They’re typically available only to accredited investors and often carry higher fees.

What are mutual funds and ETFs?

Mutual funds and exchange-traded funds (ETFs) are pooled investment vehicles that allow investors to buy a basket of assets like stocks or bonds. While mutual funds are traded once per day at the fund’s net asset value, ETFs trade throughout the day like stocks. Both offer accessible ways to diversify a portfolio with potentially lower fees and less complexity.

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This article is for informational purposes only. It is not intended to provide, and should not be interpreted as, individualized investment, legal, or tax advice. For advice concerning your own situation please contact the appropriate professional. The Gainbridge® digital platform provides informational and educational resources intended only for self-directed purposes. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Rates are subject to change. Investing involves risk, including the loss of principal. Past performance is not indicative of future results.

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