What are Bonds and How They Work?

What are Bonds and How They Work?

The value of mutual funds, stocks, and other securities can fluctuate dramatically, but high-quality bonds offer a guaranteed rate of return. They also provide passive income, with low risk, and their value will typically increase at a time when other asset classes are declining.

Think of bonds like a loan in which you are the lender instead of the borrower. You agree to a fixed interest rate for a predetermined period and receive regular interest payments on your ‘loan.’ The principal amount is paid back at the end of this term, and the issuer’s debt to you is then cleared.

Bonds are protected against stock market volatility and are safer than many investments. The level of risk you are assuming is based on the rating given to the issuer. Your Carte Financial Advisor can help you identify which of the hundreds of available bonds will offer the best options for your needs.

Government of Canada bonds are no longer available, except for the 30-year Real Return Bond. The interest rate on this long-lived bond is adjusted semi-annually based on the rate of inflation. You can also buy municipal government bonds and corporate bonds.

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