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What is it?
Bonds are a loan from an investor to a company or government that needs to raise money. An investor will purchase a bond, which lends that money to the company/government and in return, the bond issuer will pay back the loan, plus interest. Bonds are an appealing investment because they offer a fixed rate of return, however, since they involve less risk than other investments (like stocks), the returns are typically lower.
What can I use it for?
Bonds have two benefits when added to your investment portfolio:
They provide a stream of income
They can offset some of the risk and volatility you might see from owning other investments and stocks.
There are a variety of types of bonds, including Government of Canada bonds, provincial bonds, municipal bonds, high-yield bonds, and investment-grade corporate bonds. Of course, your choice of bond should align with your financial goals, risk tolerance, and investment strategy as each type has its own features and benefits that your financial advisor can guide you through.
Why invest in bonds?
Generally, bonds are more liquid (how easily an investment can be turned into cash) than some other investments, like mutual funds, because an investor can easily buy or sell bonds at prevailing market prices.
Bonds can provide a steady stream of returns over the life of the bond, which can help you meet your financial goals with a high degree of predictability.
Bonds are typically less volatile and less risky than stocks. They offer a higher level of capital preservation (the original value of your investment or sum of money), making them a suitable choice for the risk-averse looking to safeguard their principal investment.
How does it work?
When you purchase a bond, you can simply collect the interest payments while waiting for it to reach maturity (the date the bond issuer has agreed to pay back the bond’s face value).
Another option is to trade bonds. Once a bond is issued, its value can go up and down similar to a stock. If you keep the bond until it reaches its maturity date, you'll receive the agreed-upon interest payments, and the face value won't change. However, if you choose to buy and sell before maturity, the price you get may not be the same as the face value. It can fluctuate, and this is an important factor to consider when dealing with bonds.
Many often wonder what the difference between a bond and a stock is. Let’s discuss! Bonds and stocks are both issued by companies, however, bonds don’t give you any ownership rights, whereas stocks do. Bonds also involve less risk than stocks because they don’t rely on the company’s growth or if they’re not doing well. As long as the company has the resources to stay current on its loan, the bond is secure. Finally, bonds have organizations that rate the quality of the bond, while stocks do not.
Is this right for you?
✔ Right for you if you:
You’re a conservative investor. Bonds are considered a lower risk compared to an investment product like stocks. If you’re someone who wants to prioritize your original value of investment and aren’t comfortable with high volatility in the stock market, then you may find bonds appealing.
You’re planning retirement. Bonds can play a role in your retirement planning by providing a reliable source of income. They can be used to diversify your portfolio that balances growth and income.
You want to diversify your portfolio. Bonds can be a valuable asset when it comes to a diversified investment portfolio. If you're looking to spread risk across various products, bonds can help you achieve balance.
May not be right for you if you:
You're looking to maximize high returns. Bonds can be a valuable asset when it comes to a diversified investment portfolio. If you're looking to spread risk across various products, bonds can help you achieve balance.
Have a preference for growth. If you’re focused on growing your investment portfolio and are less concerned about generating income, you may want to opt for products with the potential for higher capital appreciation, such as stocks.
Accounts for your bonds
You've settled on bonds, and it aligns perfectly with your financial objectives. It's time to choose the right account to invest your funds in and watch them flourish. Discover the array of options that Conexus in partnership with Credential Securities, provides access to – there's a wealth of opportunities waiting for you!
An RRSP is a government-registered retirement savings plan that offers tax benefits today by reducing your current income tax, and it allows your money to grow tax-free until retirement when you'll likely be in a lower tax bracket. It's a smart step for your financial future.
If you're 18 or older in Saskatchewan and have a valid social insurance number (SIN), the TFSA is your gateway to saving and earning money without the burden of taxes. With a TFSA, your contributions and the income you generate within the account are tax-free, even when you decide to make withdrawals. It's a lifelong opportunity to grow your wealth while keeping more of what you earn.
Mutual funds are offered through Credential Asset Management Inc. Mutual funds and other securities are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc. Online brokerage services are offered through Qtrade Direct Investing, a division of Credential Qtrade Securities Inc. Qtrade and Qtrade Direct Investing are trade names and/or trademarks of Aviso Wealth Inc. The information contained on this webpage was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This information is provided as a general source of information and should not be considered personal investment advice or a solicitation to buy or sell any mutual funds and other securities. The views expressed are those of the not necessarily those of Credential Asset Management Inc or Credential Securities.