Bonds are the cornerstone of any investment portfolio. I personally like US Treasuries that you can buy at TreasuryDirect.gov. I have a growing bond portfolio consisting of 30-year bonds, I bonds, and EE bonds. On top of leaving my bonds to our kids, we also are building a bond portfolio under or kids’ names.
Why are bonds important? Bonds are a consistent flow of income. The income isn’t at a very high rate of return, but it will be there when you need it, unlike the stock market (perhaps). When something comes up and you need cash, you would first want to use your savings account. If you need more cash, then you liquidate some bonds. This allows you to let your stock market equities (stocks) to continue to grow. We opened treasurydirect.gov accounts for the kids, and are starting to fund than with bonds. Here is what we buy.
I bonds. Each month I buy $25 I bonds for each child. I bonds are like mini savings accounts. The interest rate isn’t very high (currently 1.1%) but it is way better than standard savings account at a brick and mortar bank. If the kids need income these will be the first to liquidate.
EE bonds. Each month I buy $25 EE bonds for each child. EE bonds have a super low-interest rate (currently 0.1%). Which is very similar to a brick and mortar bank. However, the twist is that if you hang on to a EE bond for 20 years, the US Government guarantees that it will double in price. So each month that I buy EE bonds, in 20 years they will be doubling. My oldest son is 14 years old. So when he turns 34 he will start getting a stream of cash from these investments. If he doesn’t need the cash, he can re-invest it into more bonds for his children. Not a bad deal.
As you can see, bonds are an important safety net for building wealth. The goal of any investment portfolio is not to have to liquidate any stocks or real estate for emergencies or day to day operations. Bonds allow you to protect your higher value assets.
Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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