Fixed Income vs Variable Income: Understand the Difference

What are Fixed Income and Variable Income?

When we talk about investments, the terms fixed income and variable income are fundamental to understanding how to make your money work for you. But what does each of them mean?

Fixed income refers to investments where you know in advance what the return will be. Common examples include:

• CDB (Certificate of Bank Deposit): an investment where you lend money to a bank and receive interest in return.
• Government Bonds: public bonds issued by the government that guarantee interest payments to the investor.
• LCI (Real Estate Credit Note): an investment funding the real estate sector and exempt from income tax.

On the other hand, variable income involves investments whose return is uncertain and may vary according to market performance. The most common examples include:

• Stocks: small parts of companies that you buy and which may appreciate or depreciate.
• REITs (Real Estate Investment Trusts): funds that allow you to invest in real estate without having to buy them directly.

Risk Profile: What to Consider?

Before deciding between fixed and variable income, it's important to understand your risk profile. Here are some questions you can ask yourself:

• Would you feel comfortable seeing the value of your stocks fluctuate daily?
• Are you willing to risk losing part of your capital for a potentially higher return?
• Or do you prefer a safer alternative, even if it means a lower yield?

If your answer is “yes” to the first questions, variable income may be more suitable for you. If “no”, then fixed income might be the way to go.

Returns: Comparing the Two Types of Investment

Returns are one of the most important factors when choosing where to invest. Let's make a practical comparison:

• CDB: can offer a return of 100% of the CDI, which is currently around 13.75% per year.
• Treasury Selic: usually yields close to the Selic rate, which is at 13.75% per year.
• Stocks: returns can vary widely, but historically the Brazilian stock market (Ibovespa) has delivered an average return of 10% to 15% per year.
• REITs: can provide monthly yields of about 0.5% to 1%, depending on the fund.

It's important to remember that while fixed income provides greater security, variable income can offer higher returns but with associated risks.

When to Use Each?

Now that you understand the differences, let’s see when to use each type of investment:

• Fixed Income: suitable for beginners or for short-term goals, like a trip or buying a car.
• Variable Income: more appropriate for long-term goals, like retirement, where you can withstand market fluctuations.

A good strategy is to diversify! You can allocate part of your money to fixed income and another part to variable income, according to your risk profile.

Conclusion: What to Do Now?

Understanding the difference between fixed income and variable income is essential for making better financial decisions. Analyze your risk profile, consider your goals, and if necessary, seek the help of a financial professional.

Now it's your turn! How about starting to build your investment portfolio? Make a plan and start investing in your future today!