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Bonds 101: What to know about the investment asset class

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Bonds are, essentially, loans from investors to governments or corporations. There are many types of bonds, including government, corporate, high-yield and foreign bonds. Here’s how they work and the benefits – and risks – of the investment asset class.

to governments or corporations. Companies and national, provincial and municipal governments issue bonds to raise money to pay for projects and operations, such as financing new public infrastructure or to fund capital expenditures, research and development, or even continuing operations.

, which are traded on the stock market, and via bond mutual funds. These funds tend to invest in a mix of bond types for diversification purposes, and you can purchase funds that invest specifically in short-, medium- or long-term bonds, or a mix of all terms.Some bond funds are actively managed, while others passively track the performance of a bond index like the FTSE Canada Universe Bond Index.

Even as rising rates batter bond prices, they’re a boon for yields, which move inversely with prices. from bonds over the next 10 years, according to 2022 guidelines that Canadian financial planners use for projecting long-term investment returns, inflation and more.They also act as a cushion in your portfolio during times of equity market volatility.

 

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