How to Start Investing in Bonds and Build Passive Income

Published on September 17, 2020

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How to start investing in Bonds to build passive income, even if you’re just getting started. 🎁ACORN FREE $5🎁Link: https://acorns.com/invite/38EYSU

Warning: if you want to learn, I’ll teach but if you want to get rich by tmr. Then I’m listening because I don’t anyone whos doing that lol.

Now I myself own some treasury bonds that pay me money every single month instead of every three months with stocks. So in this video im going to be showing you exactly how to start investing in bonds to build some passive income.

What are Bonds?: ( Don’t complicate it)
Real: A bond is a loan to a company or government that pays back a fixed rate of return.
Standard:
When you buy a Bond you basically lending money to that company and now they pay you interest like a credit card, but a lot less interest. Its basically buying a companies debt.
Why Bonds or Stocks: well bonds are less riskier and get paid out first if the company goes down before common and preferred stockholder. And they also more stable than stock fluctuations Example: Although stocks pay 7-12 percent on average bonds they are more open to risk. Bonds pay 5%

  • Bonds issued by the gov are backed by them( If they don’t pay it means the world is collapsing), and when a company goes down they have to pay people with Bonds before they pay people with stock
    Dividend: ( this is where passive income comes into play)
    You can build passive income by investing in bonds and then taking the monthly dividend for yourself or reinvesting it. I reinvest it, but eventually, when it’s a big sum, I’ll be using it.

Ways to invest into Bonds:

Bond: You can either buy ETF bonds like the ones I owe that give you more diversification or you can buy individual bonds
1. Financial Apps
I would use Robinhood no fees, Acorn ETF and partial shares and brokers
– Or buy it straight from the government website
– The catch is ( if you buy with a broker the spread or commission is included into the price so to figure out how much they are charging you have to do a little digging by comparing recent and sell prices for the bonds.

Pros: before I get to passive Income
Consistent return and track record
You can resell the bond on the secondary market for a higher price = profit (since interest rate are fixed if you pay a higher price the yield is lower)
If anything goes bad with the company, You’ll be more likely to get paid first
The only way to lose your principle is if the entirety falls
Can buy ETF Bonds to diversify and limit risk to not so risky situation

Cons
Locked in: If sell in a secondary market before it matures you run the risk of not getting the full amount
Lower returns than stocks: more of a cash parking spot
Interest rates going up might affect your current bond so if you try to sell it’ll look less desirable.
Inflated Returns: Companies that are in the hole might offer high returns to make it look attractive, but in reality, they are to stay alive.
Companies can Default: So check their S&P Rating it’s like a credit score for companies to see their creditworthiness.

Hot tip: The best time to buy bonds is when stocks are doing good. Why? Because the interest rates are less attractive, and when the market goes down, everyone will be rushing to buy bonds.

Types of Bonds:
Municipal Bonds
Corporate
Government as in the treasury
Junk Bonds

To Build Passive Income

Here’s what I am doing:
I use acorn to Invest in ETFs made out of bonds, Example.
SHY: Government Bonds: 5.24 shares ( treasury Bond ETF, what’s that?) price 84$ – makes .79 cents a month
LQD: Corporate Bonds 3.59 shares I own ( diverse amount of corporate bonds, what is it, example apple, visa and amz) price 126.61- make a $1.25
Here’s what you can do:
You buy Direct Bonds from a corporation or in the bond market or even government bonds and then build passive income like that also.

It’s really all up to you, you’ll go from being a borrower in a sense to a lender
* PRO TIP*
INFORMATION IS EVERYTHING
Link:
Government Bonds: https://www.treasurydirect.gov/indiv/products/products.htm
Source 1: https://www.thebalance.com/what-are-bonds-and-how-do-they-work-3306235
Source 2: https://www.nerdwallet.com/blog/investing/how-to-buy-bonds/

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