Should You Own Bonds in Your 20s in Canada? Here's the Honest Answer

You just started investing and someone told you your portfolio should include bonds. You’re 23, you have a TFSA, maybe a Wealthsimple account, and you’re wondering if bonds are something you actually need — or something older people do while you’re still trying to build wealth. The question makes sense to ask, because every retirement fund and balanced portfolio seems to hold them, but almost every investing resource aimed at young people says to go heavy on stocks. So what’s the actual answer for a young Canadian in your situation?

Quick answer: Most Canadians in their 20s don’t need bonds right now. Bonds reduce volatility but also reduce long-term returns — and with 30–40 years before retirement, you have time to ride out market dips. The main exception is if seeing your portfolio drop 30% would cause you to panic-sell, or if you’re saving for a goal within the next 3–5 years.

What Are Bonds and How Do They Work in Canada?

A bond is essentially a loan you give to a government or corporation. In Canada, you can buy federal government bonds issued by the Government of Canada, provincial bonds from provinces like Ontario or Quebec, or corporate bonds from companies like Royal Bank or BCE. In exchange for your money, the bond issuer promises to pay you a fixed interest rate — called the coupon — over a set term, then return your principal at maturity.

Unlike stocks, bonds don’t give you ownership in a company. They’re debt instruments, which makes them more predictable: you know the interest payments upfront, and assuming the issuer doesn’t default, you get your money back. That predictability is why bonds are considered lower risk — but lower risk also means lower return. Over long periods, bonds in Canada have typically returned in the range of 3–5% annually, while a diversified stock portfolio has historically returned significantly more over the same timeframes.

You can buy bonds directly, but most Canadians who hold them use bond ETFs — exchange-traded funds that hold hundreds of bonds at once. Popular options include ZAG (BMO Aggregate Bond Index ETF) and XBB (iShares Core Canadian Universe Bond Index ETF). These can be held inside your TFSA, RRSP, or a non-registered account, just like any other ETF.

Why the Standard Portfolio Advice Doesn’t Quite Apply to You

The classic portfolio recommendation you’ve probably seen — something like 60% stocks / 40% bonds — comes from an era where interest rates were higher and bonds actually earned meaningful returns. It was also designed for people who were 40–50 years old and approaching retirement, not 22-year-olds who won’t touch their investments for decades.

The logic behind including bonds is simple: when stock markets fall sharply, bonds often hold their value or even rise slightly, cushioning your portfolio. If you’re retired and drawing down savings, that cushion matters enormously — you can’t wait five years for the market to recover if you need money right now. But if you’re 24 and investing for retirement, a market correction isn’t a crisis. It’s actually an opportunity to buy more stocks at lower prices.

The opportunity cost of holding bonds in your 20s is real. Every dollar sitting in bonds is a dollar that isn’t compounding in equities over what could be a 35–40 year window. That difference becomes enormous over time, which is why many financial educators aimed at younger Canadians suggest going light on bonds or skipping them altogether until you’re closer to retirement or a major withdrawal.

Quick tip: If you want to see how your TFSA allocations balance growth versus stability, read How to Invest Your TFSA for Growth vs Safety in Canada — it walks through what that split actually looks like in practice.

When Does It Actually Make Sense to Own Bonds in Your 20s?

There are real situations where bonds belong in a young Canadian’s portfolio — the conventional advice just doesn’t apply as a blanket rule.

You’re saving for a medium-term goal. If you’re planning to use your money in three to five years — a down payment, a sabbatical, starting a business — putting that money in 100% stocks is genuinely risky. A market downturn right before you need to withdraw could delay your plans significantly. A short-duration bond fund or even a GIC would be more appropriate for that portion of your savings, while money earmarked for the long run stays in growth investments.

You know you’ll panic-sell. Be honest with yourself here. If your portfolio dropped 35% — the way Canadian and global stocks did in early 2020 — would you hold, or would you sell everything? If the answer is sell, bonds can actually protect you from yourself. A portfolio you stick with through a crash is better than a 100%-stock portfolio you abandon at the worst possible moment.

You have no buffer beyond your investments. If your investment account is pulling double duty as your emergency fund because you haven’t been able to build a separate cash cushion yet, you can’t afford the same volatility someone with six months of expenses in a high-interest savings account can. Until that cushion exists, dialing back risk makes sense.

For most other situations — regular long-term investing inside a TFSA or RRSP with no near-term plans to withdraw — bonds aren’t necessary in your 20s.

What Do Most Young Canadian Investors Actually Hold?

In practice, most Canadian investors in their 20s who are using platforms like Wealthsimple Trade or Questrade take one of two approaches:

All-equity ETFs. Options like XEQT (iShares Core Equity ETF Portfolio) or VEQT (Vanguard All-Equity ETF Portfolio) give you a globally diversified stock portfolio in a single fund. Both hold Canadian, US, international, and emerging market stocks at a low management fee. Zero bonds. This is arguably the simplest, most evidence-backed approach for a young Canadian with a long time horizon.

Target-date or balanced funds through a robo-advisor. If you use Wealthsimple Invest or a similar robo-advisor, they typically auto-include some bonds based on a risk questionnaire. If you’re young and answered honestly that you have high risk tolerance and a long horizon, your allocation might be 90% stocks / 10% bonds — close enough to all-equity that the difference is minor in the long run.

The key insight that research on passive investing in Canada consistently supports is this: keeping things simple and consistent — low-cost, diversified, left alone — tends to outperform more complicated approaches over time. Adding bonds because you think you “should” adds complexity without adding returns for most 20-somethings. If you’re still figuring out what building blocks to start with, the index funds vs ETFs guide is a good place to understand your options before committing.

Frequently Asked Questions

Should a 25-year-old in Canada hold bonds?

For most 25-year-olds, the answer is no — unless you’re saving for a goal in the next 3–5 years or know you’ll panic-sell during a downturn. With 35–40 years before retirement, you can afford to ride out market volatility and benefit from the higher long-run returns that equities have historically provided over bonds.

What percentage bonds should a 20-something have in Canada?

There’s no single right answer, but many investing approaches suggest anywhere from 0–20% bonds for investors in their 20s. The lower end — or zero — makes sense for those with long time horizons, stable income, and a separate emergency fund already in place. Your actual number should reflect your real risk tolerance and how soon you’ll need the money.

What are bond ETFs in Canada and are they better than buying bonds directly?

Bond ETFs like ZAG or XBB hold hundreds of different bonds in one fund, giving you diversification at a low cost. They’re generally more practical than buying individual bonds directly because they’re more liquid, require less capital, and are easier to hold and rebalance. You can buy them inside a TFSA or RRSP the same way you’d buy any stock or ETF.

Is it a bad idea to have 100% stocks in your TFSA in your 20s?

Not necessarily — for a long-term retirement account you won’t touch for decades, 100% stocks is a well-supported strategy. The main risk is behavioural: if you can’t watch your portfolio drop 30% without selling, an all-stock TFSA could backfire. All-equity ETFs like XEQT or VEQT reduce single-stock risk through global diversification, which makes it easier to stay the course through volatility.

Does the Bank of Canada’s interest rate affect bonds?

Yes, significantly. When interest rates rise, existing bond prices fall — and vice versa. This is why Canadian bond ETFs like ZAG declined in 2022 as the Bank of Canada raised rates rapidly. For short-term savers, that price risk is real. For long-term holders who reinvest distributions, it matters less over a 20–30 year horizon, but it’s one more reason many young Canadian investors choose to skip bonds and just hold a diversified equity portfolio instead.

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