Exploring Bonds, Mutual Funds, and ETFs

What is a bond?

A loan made by an investor to a borrower (usually a government or corporation).

Who are typical bond borrowers?

Governments and corporations.

What are key features of a bond?

1. Principal (face value)

2. Interest rate (coupon rate)

3. Maturity date

How do bonds work?

1. Investor buys a bond

2. Borrower pays periodic interest

3. At maturity, borrower repays the principal

What are government bonds?

Bonds issued by national governments; considered low-risk.
Examples: U.S. Treasury Bonds, Government of Canada Bonds.

What are corporate bonds?

Bonds issued by companies to raise money; higher risk but higher potential returns.

What affects the interest rate on corporate bonds?

The company’s credit rating — lower rating = higher risk and higher interest.

What is the minimum investment for a Government of Canada Bond?

$5,000 (CAD) or $25,000 (USD).

What are the term lengths for Canada Bonds?

1 to 30 years.

Can Government of Canada Bonds be sold before maturity?

Yes — you can access your money within 3 business days.

How and when is interest paid?

Fixed interest is paid semi-annually; face value is returned at maturity.

What determines the bond’s interest rate (coupon rate)?

The maturity date and current market interest rates.

What are the benefits of investing in bonds?

1. Regular income stream

2. Lower risk than stocks

3. Helps preserve capital

What are the main risks of investing in bonds?

1. Interest rate risk

2. Credit risk (default)

3. Inflation risk

What is a mutual fund?

A professionally managed pool of money invested in a diversified portfolio.

How do mutual funds work?

1. Investors buy shares in the fund

2. Fund managers invest in various securities

3. Returns are distributed to shareholders

What are the main types of mutual funds?

Stock funds, bond funds, balanced funds, and money market funds.

What are the main benefits of mutual funds?

Diversification, professional management, and accessibility.

What are the benefits of mutual funds?

Professional management, diversification, and accessibility for small investors.

What are the risks of mutual funds?

Market risk, potentially high fees (usually 0.5–0.75%), and lack of control over specific investments.

What is an ETF?

A type of investment fund traded on stock exchanges.

How are ETFs similar to mutual funds?

They pool money into a variety of investments and are professionally managed (often passively).

How are ETFs different from mutual funds?

1. Traded like stocks

2. Lower fees

3. More tax-efficient

What are examples of ETFs?

Stock index ETFs, bond ETFs, sector ETFs, and asset allocation ETFs.

What are the benefits of ETFs?

1. Low costs (often under 0.5%, some as low as 0.03%)

2. Tax efficiency

3. Flexibility (can trade throughout the day)

What are the risks of ETFs?

Market risk, tracking errors, and liquidity risk (especially with niche ETFs).

Why is diversification important in a portfolio?

It reduces risk by spreading investments across different assets.

What factors determine your asset allocation?

1. Risk tolerance

2. Investment goals

3. Time horizon

What’s an example of a balanced portfolio?

1. Stocks: for growth potential

2. Bonds: for stability and income

3. Mutual Funds/ETFs: for diversification

What is rebalancing?

Adjusting your investments to maintain your desired asset mix over time.