Page 16 - A Canuck's Guide to Financial Literacy 2020

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keep the same percentage of bonds as your age. If you're a 20-year-old individual, you
should keep 20% of your portfolio in bonds or fixed income. When you're purchasing a
bond, you're lending money to a corporation, government or a municipal entity. Bonds are
safer than stocks and are given a rating from agencies such as Moody's, Standard &
Poor’s, etc. Ratings act like a credit score and bonds with AAA rating are usually considered
safe.

When you buy a bond, you're receiving a guarantee from the particular issuer that you'll get
your money back plus interest. Be careful that you do not buy junk bonds which are sold by
corporations. Junk bonds also known as high yield bonds are issued by corporations but
they come with higher risk than normal.

Mutual Funds

Many investors choose to invest in mutual funds because they're managed by professional
portfolio managers and their teams. This gives the investor a piece of mind when it comes
to investing as they don't have to worry about watching the market or monitoring their
portfolios. A mutual fund is essentially a basket of stocks and when you buy a mutual fund,
you're buying a share of that basket. There are a wide variety of mutual funds to choose
from and they have different risk profiles. Advantages of mutual fund are

• Convenience
• Affordability
• Access to your money
• Professional management
• Diversification
• Access to markets

If you're not comfortable in investing in stocks or bonds yourself, it's recommended that you
invest in mutual funds as you might feel slightly comfortable with continuous oversight that
mutual funds bring.