Amount Available for Investment

The smaller the amounts of funds you have available to invest, the fewer the choices in investment products. This is because of minimum denomination requirements.

  Tax Status

Your preference for capital gains or interest income will influence your product preference. For instance, discount bonds have an inherent capital gains portion in their return, whereas premium bonds will likely provide higher income levels due to their higher coupons. It is important to note that Strips, BA's, T-Bills, and Commercial Paper, in terms of cash flow, provide no income. From a tax perspective you are still deemed to have earned interest income even though you have not physically received it yet.. Therefore, tax deferred accounts such as RRSPs are often deemed more suitable for investing in such products.

  Financial Condition of the Investor

When determining the appropriate products to invest in you should take into account such things as your net worth, size and nature of cash reserves, and the amount and regularity of cash flows. Features such as liquidity, the coupon rate, safety of principal, and frequency of coupon payments (i.e. semi-annual bonds vs monthly pay bonds, etc.) should be consistent with your investment objectives and tolerance for risk.

  Liquidity Needs and Investment Horizon

Should you require a high degree of liquidity, short-dated maturities are ideal. They are highly marketable and easily traded.On the other hand, investors with a longer investment horizon can usually pick up on yield on longer-dated maturities, and have a greater choice of investments.

  Investment Objectives

It is very important that we establish clear investment objectives in your fixed income investing that do not conflict with underlying tenet of the risk-reward tradeoff. Are you looking for safety of principal? Capital gains? High current income? Such objectives are often more appropriately satisfied with different products. For example, the greater the reliance you have on the investment for income, the greater the importance of a high current yield..

  Investor Knowledge

The Bond market can be complex and intimidating but I believe that the more people know about investing, the better the investors they become, and the more they invest. The more sophisticated the investor, the more diverse the range of products from which they tend to choose from. This deeper understanding of the risks and flexibility of the products often enables people to successfully participate in more speculative strategies (i.e. buying bonds on margin) and products.

  Investment Outlook

It is my belief that all investment decision should be consistent with an educated forecast of short and long-term interest rates, inflation, and yield differentials between market sectors (e.g. corporate bonds versus government bonds, government bonds versus commercial paper, etc.).