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Updated 2mo ago.
Updated 2mo ago.
A bond is a debt security issued by a government or corporation. When you buy a bond, you lend money to the issuer who commits to repaying you with interest on a fixed date.
A 5-year Government of Canada bond with a 3.5% coupon pays you $35 per year for every $1,000 invested. At maturity, you get your principal back.
Bond ETFs like ZAG.TO (BMO Aggregate Bond) or VAB.TO (Vanguard Canadian Aggregate Bond) let you invest in hundreds of bonds with a single purchase. They are often used to reduce portfolio volatility.
Bonds play a stabilizing role in a portfolio. When stock markets drop, quality bonds tend to hold up better. That is why balanced portfolios like VBAL.TO (60% stocks / 40% bonds) include a bond component.