Canadian Government Bonds

Buying foreign government bonds is an alternative investment strategy that many have started to employ. One government in particular that has attracted the interest of investors is Canada's. If you have ever considered investing in Canadian government bonds, here are a few things that you might want to consider. 

What Are Canadian Government Bonds?

Before you decide if you would like to invest in Canadian government bonds, you need to have an understanding of what they are. Canadian government bonds are comparable to United States Treasury bonds. The government borrows the money of the investors and then pays them a rate of return over a long period of time. This provides you with a slow and steady return on your investment. 

Why Canadian Bonds?

Many investors take on foreign bonds to diversify their portfolios. When all of your money is tied up in a certain country, you are not completely diversified from a world perspective. If that particular country were to crumble, your money would be gone. With that in mind, many people have turned towards investing in bonds from foreign countries. 

While some investors prefer to get into developing countries because of the high potential for growth, others prefer a safer alternative. Getting involved in a developed country like Canada provides you with a certain level of safety as compared to other countries that you could invest in. Canada is well-established and has a strong government structure. 

Risks 

While investing in Canadian bonds can provide you some benefits and a relatively safe investment, there are some risks associated with it. For one thing, you expose your money to a currency risk. When you buy Canadian bonds, you will have to convert your money into Canadian dollars first. When you cash in your bonds, you have to exchange it back into United States dollars. During this conversion and reconversion process, there is a chance that you will lose part of the value of the money. Exchange rates change on a daily basis, and by the time you cash in your bond, your return might not be as attractive as you had imagined. 

The other risk is that the country could go under. The likelihood of this happening is not very high, but a lot can change over the long term. Countries do fold, and new governments take their place from time to time. If you buy a long-term bond, you may be investing for a period of 30 years. No one really knows what could happen in the next 30 years, so there is some risk there. 

The Verdict

If you have been considering investing in Canadian bonds, overall it is a fairly safe investment. The Canadian government is sound, and Canada is one of the most developed countries in the world. Just be aware before you invest that there is some risk involved. 

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