If you're looking for a secure long-term investment that will generate interest income, take a look at fixed income investments. We can help you choose from a wide range of options to build a well-balanced investment plan and, if held to maturity, a guaranteed return.
Canadian investors in the know understand that fixed income investments are an integral part of every well-balanced portfolio. They provide safety of principal, regular interest income, and the potential to generate capital gains whenever interest rates move lower.
Fixed income investments also help to reduce the overall risk of your investment portfolio. Depending on the issuer, they can provide a guaranteed fixed return when held to maturity and are a source of stable cash flow. If you are an active investor who currently owns stocks or equity mutual funds, fixed income investments can add stability to the value of your portfolio because of the potential return they provide.
There is a wide variety of fixed income investments including Government of Canada and Provincial Bonds, Federal Crown Corporation Bonds, corporate bonds, stripped bonds ("strips") and mortgage-backed securities. All are fully marketable and can be sold at market value at any time, should you need access to your funds. Fixed income investments can be purchased from your local TD Canada Trust Branch, through TD Waterhouse, or from TD Evergreen Investment Services.
Term Deposits and Guaranteed Investment Certificates (GICs) are another form of fixed term investment. They offer a specific rate for a pre-determined period of time.
Government-Issued Fixed Income Investments
Government-Issued Fixed Income Investments are fully guaranteed by the issuer for both principal and interest--no matter how much you invest. They are essentially risk-free if held to maturity and also provide the flexibility of being marketable, so that you can sell your investment before maturity if you need to. You have a wide choice of investment terms, ranging from one year to 30 years.
Each of Canada's ten provinces issues their own bonds. While provincial bonds carry a greater credit risk than Government of Canada and Federal Crown Corporation Bonds, they represent some of the safest investments available. Provincial bonds also provide the flexibility of being marketable securities, which can be sold prior to maturity at prevailing market prices. Many government bonds can be purchased in either U.S. or Canadian denominations, and are considered Canadian content in your RSP or RRIF.
- The yields on these issues are typically expressed as a spread over Government of Canada benchmark bond yields.
More about Government of Canada Bonds
More about Federal Crown Corporation Bonds
More about Term Deposits and Guaranteed Investment Certificates
Stripped Bonds ("Strips")
Stripped Bonds are ideally suited for RSPs, RESPs and saving for other long-term goals because they eliminate reinvestment risk over the term of your investment. Strips are created when the interest payment coupons are separated from the principal portion of a bond. Both are then sold as individual investments. They are always sold at a discount and mature at face value; the difference is your interest income. The longer the term to maturity, the deeper the discount. Like all bonds, you know exactly how much your investment will be worth at maturity and how much income you will earn. But with strips, you also reap the benefits of true interest compounding, so a relatively small investment goes a long way.
Mortgage-Backed Securities
Mortgage-Backed Securities are fixed-rate investments that are ideal for investors who want a very safe investment that provides monthly income. They represent an ownership interest in a pool of many mortgages. The monthly payments they provide are a share of the interest and principal payments associated with these mortgages. Mortgage-backed securities have terms from 1 to 10 years and are fully guaranteed by the Canadian Mortgage and Housing Corporation (CMHC).
More About Mortgage-Backed Securities ("MBS")
