What Are Bonds? 

If stocks are like owning a piece of a company, bonds are like lending money to one and getting paid back with interest.

When you buy a bond, you’re acting like the bank. You're giving a loan to a government, city, or corporation. In return, they promise to pay you regular interest — usually every six months — and then return the full amount (called the principal) when the bond "matures."

 

Think of it like this: your friend wants to borrow $1,000 to start a business. You agree — but only if they pay you $50 a year for five years, then give you your $1,000 back. That’s a bond in a nutshell.

Bonds are often seen as the “steady Eddy” of the investment world. They don’t make headlines. They don’t spike or crash overnight like tech stocks or crypto. But that’s their power — they’re built for stability.

Here’s what makes bonds appealing:

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• Predictable income — you know what you’re getting and when.

• Lower risk — especially with government bonds.

• Portfolio balance — they soften the blow when stock markets tumble.

But bonds aren’t risk-free. Companies can default. Inflation can erode the value of your fixed payments. And if interest rates rise, bond prices often fall

meaning you might not get full value if you sell early.

Still, for many investors — especially those closer to retirement or looking for balance — bonds serve an important role. They bring calm to a noisy portfolio.

 

Bonds aren’t flashy. They’re not supposed to be. They’re the part of your investment plan that lets you sleep at night.

Because real wealth isn’t just about growing fast. It’s about lasting — through bull markets, bear markets, and everything in between. Bonds help you do that.

Different Types of Bonds

Although bonds are all considered fixed-income securities, there are various types available, each with distinct characteristics. The most common types include:

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• Government of Canada Bonds: These bonds are considered the highest quality as they are backed by the federal government.

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• Provincial Bonds: While the credit ratings of these bonds are typically lower than those of Government of Canada bonds, their yields are generally higher.

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• Municipal Bonds: Depending on liquidity and other factors, municipal bonds can offer either higher or lower yields than provincial bonds of similar quality.

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• Investment-Grade Corporate Bonds: These bonds, rated “BBB-” or “Baa3” or higher, are considered investment-grade. Although riskier than government bonds, corporate bonds often provide higher returns.

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• High-Yield Bonds: Bonds rated below “BBB-” or “Baa3” are classified as non-investment grade, or junk bonds. These bonds typically offer higher yields but carry a significantly higher risk of loss.

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• Strip Coupons and Residual Bonds: Bonds issued by the government, provinces, or municipalities often have two components: interest payments (coupons) and the principal amount (residual). These components can be sold separately.

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• Canada Savings Bonds (CSB): Historically purchased through payroll savings programs, CSBs were guaranteed by the government with a fixed interest rate. These bonds are no longer available for purchase.

How to Buy Bonds

Bonds can be purchased directly through brokers, such as banks or credit unions, or via a personal brokerage account.

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• Purchasing Bonds Directly

​Individuals interested in buying bonds can go directly to a financial institution or licensed advisor. They will typically provide a list of available bonds, and investors can make purchases via phone, online, or in person.

Many bonds have a minimum purchase amount, and brokers may charge a flat fee for completing the transaction, which is often included in the quoted price.

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• Once a bond is purchased, interest payments will be deposited into the investor’s designated account, which will also receive the principal when the bond matures. If you wish to sell your bond before maturity, you would need to contact your broker.

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• Purchasing Bonds Through Brokerage Accounts

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Investors with brokerage accounts can purchase bond exchange-traded funds (ETFs), which allow them to access a diversified pool of bonds in one product. Bond ETFs are available in various types to meet different investment needs.
Bond ETF prices fluctuate based on market conditions, and most brokerages charge fees for buying and selling ETFs. Bond ETFs also carry a small management fee.

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Advantages and Disadvantages of Bonds

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While bonds are considered relatively low-risk investments, they do have both benefits and limitations. Here are some of the key points to consider:

Advantages of Bond

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• Low Risk: Bonds from government entities and investment-grade corporations are usually rated highly, which reduces the risk of losing money compared to more volatile investments like stocks.

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• Steady Income: Bonds pay regular interest, making them a good source of predictable income.

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• Variety of Options: With the growing popularity of bond ETFs, investors now have access to a wide range of bonds through a single purchase.

Disadvantages of Bonds

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• Lower Returns: Since bonds are safer investments, they generally offer lower returns than other investment types.

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• Risk of Inflation: Depending on interest rates, the return from bonds may not outpace inflation, leading to a potential loss of purchasing power over time.

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• Some Risk: Lower-quality bonds, while offering higher yields, come with more risk of default or other negative outcomes.

Are Bonds a Good Investment Right Now?

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Investing in bonds may be a wise decision if you’re seeking a fixed-income investment to balance more volatile assets like stocks or ETFs.

Your decision to invest in bonds should also take into account your time horizon. Generally, younger investors might allocate fewer bonds in their portfolio, as they have many years of growth ahead before needing to access their funds in retirement. However, individuals who are nearing retirement or already retired may prefer a larger portion of their portfolio in bonds, as they may need more regular income and have less time to recover from declines in the value of more volatile investments.