It is not a matter of choosing between fixed income or equity securities as if they were two mutually exclusive options. Quite the contrary. They are not conflicting concepts -as millions of investment portfolios can attest to- but rather contribute different ingredients to the same investment cooking pot.

Briefly, fixed income securities are financial assets with a totally guaranteed yield. There is absolutely no uncertainty about the outcome. The interest rate to be paid is established when the product is offered, and is not linked to corporate results or stock market performance. To talk of fixed income is to talk of bonds, and government securities and debt.

Equity securities, on the other hand, lead us into the world of Stock markets and shareholder meetings of the big corporations. The yield of these instruments depends on the stock market performance of the issuing company and the profits it makes. We are talking here about shares, whose yield is measured in terms of dividends or capital gains.

Liquidity and risk are the two main variables which govern the yield of any security. The investor should be aware that the less risk they are prepared to take, the lower the earnings they will be liable to obtain. Also, the more liquidity an investor demands, the lower the yield will be. On the other hand, the shortest route to making large amounts of money is to take big risks and forsake liquidity. The above rule of thumb never fails and should always be borne in mind when deciding on an investment strategy.

Main types of fixed income securities
One of the most attractive aspects of these securities is the wide range there is to choose from. They can be broadly split into two types: money market issues, which have an acceptable degree of liquidity, since their investment period is never more than 16 months; and capital market issues, which are long term bonds (with low liquidity), with terms of anything between 18 months and 30 years.

Treasury bills. These are issued by the General Directorate of Treasury and Financial Policy. Terms are six months, one year and 18 months, the minimum amount which can be invested is 1,000 euros, and they are auctioned and issued at a discount. This means that the acquisition price is lower than the sum the investor will obtain when the bill matures. The difference between the two figures is the investment�s yield. The tax treatment that these instruments enjoy is one of their greatest attractions, since the profit made is free of withholding tax, both on IRPF (annual income tax return for physical persons) and on Corporate Tax (for legal persons).

Corporate bonds and notes. These are similar to bills, since they are issued at a discount and they are also paid at maturity. Unlike the former, corporate bonds and notes are backed by the issuing corporation, not the government. The main aim of companies which issue bonds, or the Administrations which issue bills, is to obtain financing under better conditions than the banks will give them.

Government debt. First we need to know the difference between the two types of bonds the Spanish Treasury issues, which are known as bonos del Estado and obligaciones del Estado. The former mature at between two and five years and the latter are always for terms of at least five years (typically 10, 15 and 20 years). These securities receive a regular interest payment in the form of a coupon (the corresponding nominal interest is paid out each year) and they are issued at auction (like treasury bills). This type of bond is also issued by corporations.