Fixed income securities (or Bonds) are like a loan – you lend your money to a government or company for a certain period of time and, in return, they promise to pay you a fixed rate of interest throughout the life of the security. Government and Corporate bonds are an example.
A government or corporate bond pays a fixed rate of interest for each year to maturity and repays the “face value” at the end of the bond’s term (its maturity date). The face value (or par value) is the value at which the bond was issued.
A bond’s term can range from one to 30 years. Bonds tend to offer better rates of return than cash equivalent investments, such as GICs, because you are taking on more risk by lending your money for a longer period of time. As with any investment, generally higher-return rate bonds carry higher risk and have no guarantees you will get your money back.
In addition to interest payments, you could also earn money on your bond if you sell it for more than you paid. Generally, when interest rates go down, the value of a bond goes up. By selling the bond in this situation, you may get more than you paid for it. You will also have the interest payments you received while you held the bond. When interest rates go up, however, generally the value of a bond decreases. By selling the bond in this situation, you may get less than you paid for it.
You could also lose money if the bond issuer is unable to pay you the interest payments. If the company is dissolved, bondholders may have a right to a portion of the company’s remaining assets; however, you may not get back all or any of the money you originally invested.