Corporate bonds

Did you know that the global bond market is ten times larger than the stock market? Corporate bonds are a very effective investment vehicle, yet they are highly underrated and underutilized.

Most people are familiar with government bonds, such as Guaranteed Investment Certificates (GICs) and Canada Savings Bonds (CSBs). You “loan” your money to the government for a certain length of time and, in return, receive a guaranteed amount of interest upon the bond’s maturity date.

But few people realize that corporate bonds work the same way, and usually pay over twice as much interest than government bonds. Just like various governments, corporations sell bonds that come with an unconditional guarantee that they will repay both your principal and your interest — in full and on time.

Corporate bonds and other fixed income solutions are an excellent way to enhance your returns, balance your portfolio and safeguard against loss. Pension funds are renowned for astute long-term investing and most of them have a huge portion of their assets in corporate bonds.

Wide range of options

Corporate bonds are available in a wide range of maturities. You can choose a timeframe that suits your needs, from 1-year to 30-year terms.

In general, the longer you hold a bond, the higher the interest rate it pays, and the lower the quality of company that issues the bond, the higher the interest rate it pays.

Corporate bonds offer liquidity

A major advantage of corporate bonds over GICs is that they can be bought and sold prior to their maturity dates without built-in-penalties. Depending on your life situation, you may need a certain amount of liquidity. Choosing to sell your corporate bonds and get access to cash is always an option.

The added advantage of convertible bonds

Convertible bonds are corporate bonds that can be converted into equities. They offer all the advantages of corporate bonds and also provide the investor with both the yield from the bond and shares in the company once the bonds are converted into equities.

When you purchase a convertible bond, it can be converted into shares in the issuing company at any time. When the stock price goes up in value to a certain degree, we convert the bond to shares because the value of the shares will be greater than you stand to earn in coupon payments.

Convertible bonds are complex securities. Various factors affect their prices, including interest rates and the market for the related stock. They should only be purchased with the guidance of an experienced specialist.