XEQT vs Bond ETFs: Do You Actually Need Bonds in Your 20s and 30s?

My dad thinks I’m reckless. When I told him my entire portfolio was in XEQT — 100% equities, zero bonds — he looked at me the way you’d look at someone skydiving without checking their parachute. “You need bonds,” he said. “That’s what balanced portfolios are for.”

He’s not wrong that bonds have a place in investing. He’s just wrong about when they matter. And if you’re in your 20s or 30s with decades of investing ahead, I’d argue that the conventional wisdom about bonds is costing young Canadians a fortune.

Let me explain why I’m all-in on XEQT, and when bonds actually start making sense.

1. Bonds 101: What Are They and What Do They Do?

Before we compare, let’s make sure we’re on the same page about what bonds actually are.

When you buy a bond (or a bond ETF), you’re essentially lending money to a government or corporation. In return, they pay you regular interest and promise to return your money at a set date. Bond ETFs bundle thousands of these loans into a single fund.

The most popular bond ETFs in Canada:

These funds typically return 3-5% over the long term and act as a cushion during stock market crashes. When stocks drop, bonds usually hold steady or rise slightly, reducing your overall portfolio volatility.

That’s the trade-off in a nutshell: bonds reduce your ride’s bumpiness, but they also reduce how far you travel.

2. XEQT vs Bond ETFs: The Numbers

Let’s compare XEQT (100% equities) against some common balanced approaches that include bonds.

Now let’s see what these differences mean in actual dollars. Assume you invest $500/month for 30 years:

The difference between XEQT and XBAL over 30 years? Roughly $285,000. That’s not a rounding error. That’s a house. That’s a decade of retirement income. That’s the real cost of “playing it safe” when you have decades of time on your side.

3. The Case for 100% XEQT (When You’re Young)

Here’s why I believe most investors in their 20s and 30s should be 100% XEQT with zero bonds:

You have time on your side

The number one factor that determines whether you can handle a 100% equity portfolio is your time horizon. If you’re 28 and investing for retirement at 60-65, you have 30+ years. Over any 20-year period in stock market history, a globally diversified equity portfolio has delivered positive returns. Every single time.

Yes, your portfolio might drop 35% in a bad year. But you won’t be selling during that bad year. You’ll be buying more shares at a discount and waiting for the recovery. And the recovery always comes.

Your human capital is your bond

Here’s a concept most people don’t think about: when you’re young, your biggest asset isn’t your portfolio — it’s your future earning power. A 28-year-old with a stable career has potentially $2-3 million in future earnings ahead of them. That earning power acts as an implicit bond allocation in your overall net worth.

You don’t need bonds in your portfolio to provide stability because your paycheque already does that. You can withstand portfolio volatility because you have decades of income to continue contributing through downturns.

Bonds haven’t been the safe haven they used to be

The bond market went through its worst period in modern history during 2022. ZAG dropped roughly 12% that year. Investors who thought bonds would protect them during a downturn got a rude awakening: when inflation and interest rates spike simultaneously, bonds and stocks can both fall together.

This doesn’t mean bonds are useless, but it does weaken the “bonds protect you during crashes” argument. In an inflationary downturn — arguably the scariest scenario for investors — bonds failed to do their job.

The opportunity cost is enormous

Going back to our table: the difference between XEQT and a 60/40 portfolio (XBAL) over 30 years was $285,000 on just $500/month contributions. That gap widens dramatically with higher contributions or longer time horizons.

Every dollar you allocate to bonds in your 20s is a dollar that won’t compound at equity returns for the next 30-40 years. The math is unforgiving. You’re not “reducing risk” — you’re reducing your future wealth.

4. The Case for Adding Bonds (Eventually)

I’m not anti-bond forever. There are very real situations where bonds earn a place in your portfolio:

You’re within 10 years of retirement

As you approach the date when you’ll start withdrawing from your portfolio, volatility becomes a genuine risk. A 35% drawdown at age 62 is very different from a 35% drawdown at age 28. At 62, you might be forced to sell during the dip to fund your living expenses. That’s called sequence-of-returns risk, and it can permanently damage your retirement income.

This is when you start shifting from XEQT toward something like XGRO (80/20) or eventually XBAL (60/40) — what’s known as a glide path approach.

You have a weak stomach and it’s causing you to panic-sell

Here’s the honest truth: the best portfolio is the one you can actually stick with. If a 30% drop would cause you to sell everything and flee to cash, then a 100% equity portfolio is wrong for you — not because of the math, but because of your psychology.

In that case, adding 20% bonds (basically owning XGRO instead of XEQT) reduces your worst-case drawdowns from roughly -35% to -25%. If that’s the difference between staying the course and panic-selling, the bonds have earned their place.

But be honest with yourself about this. Most young investors think they’ll panic-sell during a crash, but when the crash actually happens, those who have a regular contribution schedule tend to just keep buying. The automatic nature of DCA into XEQT makes it surprisingly easy to hold through downturns.

You have specific medium-term goals

If you need a chunk of money in 3-7 years for a down payment, a sabbatical, or a major purchase, a blend of stocks and bonds can smooth out the ride enough that you’re less likely to be underwater when you need the money. For goals under 3 years, skip stocks entirely and use HISA ETFs or GICs.

5. “But My Financial Advisor Says I Need Bonds…”

Let me address this directly because I hear it constantly.

Many financial advisors recommend 20-40% bond allocations for young investors. Some of this is sound practice. But there are a few things worth understanding:

Risk profiling questionnaires are conservative by design

Those questionnaires you fill out at the bank? They’re designed to prevent lawsuits, not to optimize your returns. If you indicate any discomfort with volatility, the algorithm bumps up your bond allocation. The questionnaire doesn’t account for your time horizon the way it should.

Balanced funds generate more fees in some cases

Mutual fund companies love balanced funds because they’re seen as “responsible” defaults. A bank advisor recommending a balanced mutual fund with a 2% MER is making the bank a lot of money while delivering mediocre returns. A 60/40 portfolio in high-fee mutual funds is one of the worst combinations in investing.

The one-size-fits-all problem

A 60-year-old nearing retirement and a 25-year-old just starting their career should not have the same bond allocation. But “balanced” is an easy recommendation. It requires less explanation and generates fewer complaints when markets dip. That doesn’t make it right for you.

6. What About XGRO? The Middle Ground

If you’re genuinely unsure about going 100% XEQT, there’s a reasonable middle ground: XGRO (iShares Core Growth ETF Allocation).

XGRO is essentially XEQT with 20% bonds mixed in. Same global diversification, same auto-rebalancing, same low 0.20% MER — just with a small bond cushion.

XGRO is a perfectly fine choice. If the difference between XGRO and XEQT is what keeps you invested through a crash, then XGRO is the right pick. But don’t choose XGRO because a bank advisor told you to “be balanced.” Choose it because you’ve honestly evaluated your own emotional response to a 35% drawdown and decided you need the buffer.

For most 20-30 somethings? XEQT is the answer.

7. The Bond Allocation By Age Framework

If you’re looking for a simple rule of thumb for when to start adding bonds, here’s a framework I like:

This is a guideline, not a rule. Your personal risk tolerance, income stability, other assets (pension, real estate), and retirement plans all factor in. But the general principle holds: young investors should be heavily tilted toward equities, and bonds should gradually increase as you approach the withdrawal phase.

The beauty of iShares’ all-in-one ETF lineup (XEQT → XGRO → XBAL → XCNS) is that transitioning is as simple as selling one ETF and buying another. No rebalancing headaches. No complicated math.

8. The 2022 Bond Crash: A Wake-Up Call

I mentioned this briefly, but it deserves its own section because it fundamentally changed how many investors think about bonds.

In 2022:

• ZAG (Canadian aggregate bonds): Down ~12%
• XBB (Canadian aggregate bonds): Down ~12%
• ZFL (long-term federal bonds): Down ~22%
• S&P/TSX (Canadian stocks): Down ~6%
• XEQT: Down ~11%

Wait — bonds dropped more than Canadian stocks? And almost as much as a globally diversified equity portfolio?

Yes. When inflation surged and the Bank of Canada hiked rates aggressively, bond prices cratered. This was the worst year for bonds in decades. A “conservative” 60/40 portfolio (XBAL) still dropped about 12-13%. The bond allocation didn’t save anyone.

The lesson: bonds are not a crash-proof asset. They’re a volatility-reducing asset that works best during certain types of downturns (deflationary recessions), but can actually add risk during inflationary periods. If you’re holding bonds primarily for crash protection, you might be getting less protection than you think.

For young investors, this is another reason to simply hold XEQT. If bonds aren’t reliably protecting you during the bad times, and they’re definitively costing you returns during the good times, what’s the point of holding them at 28?

9. My Personal Approach

I’ll share my own strategy so you can see how this looks in practice:

• I’m in my early 30s with a stable income and 25-30+ years until retirement
• 100% of my TFSA and RRSP is in XEQT — zero bonds
• My emergency fund is in a high-interest savings account (not invested in anything)
• My short-term savings (travel, car fund) are in a HISA ETF
• I contribute automatically every paycheque via Wealthsimple’s recurring buy feature

When the market dropped in early 2025, my portfolio lost about $12,000 in paper value. It felt uncomfortable for about 48 hours. Then I remembered: I didn’t need that money for decades, my automatic contributions were buying more shares at lower prices, and every historical recovery has rewarded patient investors.

By the time the market recovered, my “crash purchases” were some of the best investments I’d ever made.

That’s the advantage of being young and 100% equities. Volatility isn’t your enemy — it’s your buying opportunity.

10. A Simple Decision Framework

Still unsure? Walk through this:

Question 1: When will you need this money?

• Under 3 years → HISA ETF or GIC (no stocks, no bonds)
• 3-7 years → Consider XGRO or XBAL
• 7+ years → XEQT

Question 2: Could a 35% portfolio drop cause you to sell everything?

• Yes, genuinely → XGRO (80/20)
• No, I’ll hold → XEQT

Question 3: Are you within 10 years of needing to draw from this money?

• Yes → Start transitioning toward XGRO/XBAL
• No → XEQT

If your answers were “7+ years,” “No,” and “No” — you don’t need bonds. You need XEQT and patience.

The Bottom Line

Bonds are a tool. Like any tool, they’re useful when applied correctly and wasteful when applied incorrectly. For young Canadian investors with long time horizons, strong earning potential, and the emotional resilience to ride out downturns, a 100% XEQT portfolio is the mathematically optimal choice.

Your dad might disagree. Your bank advisor might disagree. The risk profiling questionnaire will definitely disagree. But the data is clear: over 20-30 year periods, the drag from bond allocations costs young investors hundreds of thousands of dollars in forgone growth.

Will your portfolio be bumpier without bonds? Yes. Will some years be genuinely uncomfortable? Absolutely. But the discomfort is temporary. The wealth you build by staying 100% equities is permanent.

Just buy XEQT. You can worry about bonds when you’re older.