There are many kinds of bonds to choose from, including:

• Federal government bonds
• Bonds of a government agency (such as the Farm Credit Corporation)
• Provincial government bonds
• Bonds sold by a city (called municipal bonds)
• Bonds sold by corporations.

How do I choose the right bonds for my portfolio?

Here are five key questions to ask before you buy bonds: 

1. Which government or company do I want to lend money to?
2. How many months or years do I plan to invest?
3. What price am I willing to pay?
4. What interest rate will I get?
5. How risky is this bond? 

How do I assess the risk of a bond investment?

In general, you’ll get a higher interest rate on higher-risk bonds, but there is more risk you may not get back your original investment. Here are some examples of higher-risk bonds: 

• Junk bonds: Very high-yield bonds are sometimes called junk bonds. The name says it all. Companies that issue junk bonds often have lower credit ratings. That means they may not pay back their debts, including their debt to you, the bondholder. You may get lucky and make money, or you could lose money. 
  
• Blue chip subsidiaries: Sometimes stable blue chip companies have a subsidiary whose bonds are junk. Get professional advice if you are not sure. 
  
• Long maturity: Bonds with longer maturities (for example, 10-year to 15-year terms) usually offer higher interest rates. That’s because there is just no way of knowing where interest rates will go over such a long time period. If rates go up, the price of your bond will fall and you could be stuck with an investment that doesn’t make as much as others would. 

Tip: You can learn about the risk of different bonds from a bond rating service. These firms rate the ability of the issuer to make regular interest payments and to pay investors back when the bond matures.

The factors that cause the price of bonds to rise and fall are complex. As an investor, you need to decide on the level of risk you are willing, and able, to take. Many investors who think about buying bonds use an adviser. Advisers can help you access research from companies that rank the risk of bonds. This kind of advice helps you make sure you stay in your comfort zone for risk when you invest. 

Remember: The risk of bond investments varies.

It’s important to understand the level of risk before you buy. Also, if you plan to buy and sell bonds before they mature, you need to understand the factors that cause bond prices to shift, or get expert advice.