Stocks are equity in a company, which is ownership with voting rights. A bond is a loan to a company or government, which makes the investor a creditor. Bonds have lower credit risk because investors have priority claims on assets if the bond issuer becomes insolvent.
Bonds can play a role if you have a shorter-term investment goal, like saving for a first home. Retirees often buy bonds to provide dependable investment income. Bonds are generally lower risk and are considered "fixed-income" investments.
Different bonds carry different levels of risk. You can learn about a bond’s credit risk from a credit rating agency. The credit rating of a bond indicates the likelihood of the issuer’s ability to make regular interest payments and to pay back investors at maturity.
A bond is essentially a loan to a corporation or government. Just as a homeowner may pay a bank interest on a mortgage, bonds generate regular – or fixed – interest payments on the principal amount of the bond (the loan).
You can buy bonds through your broker at either a full-service or discount brokerage. Many investors hold bonds indirectly through the fixed-income portions of ETFs and mutual funds. Bonds are eligible to be included in your RRSP, TFSA or RRIF. Learn more about bonds on GetSmarterAboutMoney.ca.