Blogs & Comment

Risk reaps reward

It may be a good time to pick up a few higher paying junk bonds.


It is still wise to add some bonds to a portfolio. However, you don’t have to settle for low-paying government securities. Serge Pepin, the head of BMO Investments, says people should consider corporate or high-yield bonds—also known as junk bonds—which pay higher yields than federal issues. Corporate and junk bonds are riskier than government issues, which is why yields are higher—investment grade corporates offer about 1% more yield; below investment grade high-yield bonds, on average, pay 4.5% higher than governments—but Pepin says default rates have fallen as the economy’s improved, so there’s less risk than there was during the recession. Look beyond Canada’s borders for bonds, he says. “Overseas, the bond market is huge,” he explains. “Emerging market, or other developed market bonds, would complement a Canadian portfolio.” While there are numerous other investment strategies people can use to prepare for old age in the 21st century, it’s important to know that the retirement rules have changed. People are living longer and are less prepared for retirement than ever before. Every Canadian should be thinking about their golden years right now, so they’ll be ready when the big day comes. “There’s only one thing you want to think about when you retire,” says Pepin. “When’s the next golf game?”

(Research, editorial and spiritual support provided by Bryan Borzykowski)

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