What Is Non-Fluctuating?

Non-fluctuating is a characteristic of constancy in a security or measurement's value, rate of change, or other metric. Non-fluctuating is a feature of a fixed-rate asset which has a constant yield, such as a government-issued debenture. (However, the market price of the government-issued debenture will fluctuate as interest rates change).

A non-fluctuating characteristic is the opposite of a volatile characteristic. With a volatile characteristic, changes in the prescribed rate or value does occur. An investment that has non-fluctuating returns with little risk tends to have lower returns than investments that are exposed to volatility.

Key Takeaways

  • Non-fluctuating is a characteristic of an asset that has a prescribed rate or return that doesn't change.
  • A non-fluctuating characteristic is the opposite of a volatile characteristic; with a volatile characteristic, changes in the prescribed rate or value does occur.
  • The most common non-fluctuating assets are bonds, preferred stocks, and certificates of deposit (CDs).

Understanding Non-Fluctuating

The common stock of a public corporation is more likely to fluctuate in both dividend yield and market price. Dividends paid on preferred stock are non-fluctuating; that is, they are paid at a fixed rate. Dividends paid on common stock, on the other hand, may fluctuate. However, some secure and stable companies, such as blue chips, may offer steady dividends.

Other non-fluctuating investments include money market funds (which are similar to savings accounts), savings accounts (although the bank may change the rate from time to time), and certificates of deposit (CDs).

For investors, the amount of non-fluctuating assets to incorporate into an investment portfolio largely depends on that individual’s long-term goals, risk profile, time horizon, and other factors. For example, it would make sense for an investor with short-term goals–ranging from one to three years as they near retirement–to tilt towards relatively safe, non-fluctuating-type assets, such as CDs, higher interest savings accounts, fixed annuities, and money market funds that produce predictable yields and dividend income.

On the other hand, long-term goal-oriented investors–with time horizons of five years or more– may want to consider stocks, bonds, or mutual funds that focus on growth stocks and sector-specific stocks.

An investor’s level of discipline, specifically when it comes to saving money and investing, will also influence the amount of non-fluctuating assets in their portfolio. Individuals who habitually spent more than they earn or carry high monthly credit card balances may decide to counter those higher costs with stable non-fluctuating investments. Those with discretionary income may benefit from allocating more money towards riskier investments that might yield higher returns.

Investors who are prone to gambling on stocks or futures may opt for allocating more capital to non-fluctuating assets (which will safeguard some of their capital). Conservative investors, or those with a well-defined investing strategy that works well over the long-term, are better off allocating more capital to their strategy than to non-fluctuating assets which typically produce lower returns.

All investors should fashion a portfolio that boasts a healthy mix of fluctuating and non-fluctuating assets based on their personal situation.

Real-World Example of Non-Fluctuating Asset

Apple Inc. (AAPL) has a number of bonds outstanding, including a 3% coupon bond issued in 2017 and maturing in 2027. The coupon rate stays the same from the issuance of the bond until maturity, yet the price of the bond may change. The face value of the bond is 100 ($1,000 denomination) but the bond may trade at 105 if the prevailing coupon rate on comparable bonds is lower than 3%. For this reason, people are willing to pay a higher price for the bond. If investors can buy equivalent bonds with a higher coupon, the bond may trade at 97. Therefore, they aren't willing to pay the full value for a bond with a lower coupon. In either case, at maturity, the holder will still receive 100, and a 3% coupon until maturity.