Add Diversity To Your Portfolio With Bonds
A dilemma for more conservative investors is finding an appropriate investment vehicle that suits their risk profile yet also provides positive returns. Stocks can offer higher returns yet can be volatile, and GICs offer lower returns because of their safety. Is there a middle ground? Bonds can offer less volatility than equities to your portfolio by providing a steady stream of income and a higher degree of safety and capital preservation than a portfolio composed solely of equities.
An Investment That Provides Ongoing Income
A bond is essentially an IOU – the borrower (issuer) promises to pay the investor a specified rate of interest (coupon rate) on a regular basis for as long as the investor holds the investment, and then repays the principal on a stated maturity date. One thing to keep in mind is that the bond's value is tied inversely to interest rates. That is, when interest rates fall, the bond price will usually rise. But when rates increase, the price will drop. You can either take a buy-and-hold approach by holding bonds to maturity, and receiving interest payments for the life of the bond, or you can sell it before maturity.
Benefits Of Bonds
Bonds offer the following advantages:
- Safety from a steady stream of income and an issuer-guaranteed payback price if held to maturity
- Predictable cash flows over a period of time
- A variety of bonds to choose from including government, foreign currency-denominated and corporate-issued
- Additional portfolio diversification that can reduce your overall investment risk
Get The Help You Need
Your CIBC Wood Gundy Investment Advisor can help you evaluate the variety of bonds available. Together you can determine if bonds are the right investment for you. To find out how we can help you, use our Find An Advisor tool to contact a CIBC Wood Gundy Investment Advisor near you.
The information contained herein is considered accurate at the time of posting. CIBC and CIBC World Markets Inc. reserve the right to change any of it without prior notice. It is for general information purposes only.
Clients are advised to seek advice regarding their particular circumstances from their personal tax advisors.