I spend a lot of time writing about dividends and income investing. However, recently bonds have become attractive because they offer higher yields compared to the last 10-15 years.
Now, it’s time to write the companion series to my Dividend Investing at Any Age series (20s, 30s, 40s, 50s, 60s, 70s), this time focusing on bonds.
Bonds will be essential in your life because they can serve as growth, capital gains, income, and an emergency fund. Let’s kick this series off in style.
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Focus on reality. The most challenging part of your 20s is preparing for the future. When you are young, you believe everything will work out in the end.
Things you put into motion in your 20s can have major repercussions later in life. Therefore, you want to ensure you make the best decisions possible by studying, researching, and asking questions.
As a single person living in a big or small city, you have the freedom to save as you wish. This timeframe is vital to prepare for a future marriage and family.
Bonds can play a massive role in your emergency fund, growth prospects, and income. You will need to understand the difference between saving and investing in utilizing bonds to their full potential.
The In-Debt-ured Servant
Saving vs. Investing. There is a difference between saving and investing, and it’s vital we know the difference.
We save to protect from emergencies in the present time. Over a few years, we can save for purchases, like a vacation or house.
Because we may need this money at any time, we must ensure we keep it in the safest possible securities. In this case, we will use Savings “I” Bonds as our bonds-saving platform of choice.
We invest in facilitating a better future, usually focusing on retirement and generational wealth. When we discuss investing, we look for words such as interest rates, yields, and return on investment.
Living Overseas Passively 109: Cash & Emergency Fund
In your 20s, treasury bonds are a great way to invest in bonds while earning an income over time. Buying bonds directly from the US government via the Treasury Direct website is simple. Let’s dive deeper into using Series “I” Bonds and Treasury bonds in our 20s.
Using bonds for saving in our 20s. I wish I had a road map to life in my early 20s. If so, I would use this time to save and invest BEFORE getting married.
Luckily, you are reading this, so I can give you the road map I would have wanted. An emergency fund is perhaps the most crucial part of being an adult.
My Four Favorite Index Funds
Your emergency fund consists of high-yield savings, certificates of deposits, and Series “I” Bonds. These are safe instruments that we can depend on when needed.
You can only invest $10,000/year into Series “I” Bonds, so you should try to max that out every year. Yes, you may be broke in your 20s; however, you have the youth to work multiple jobs or start a business.
Series “I” Bonds vs. 401Ks. The media tells you to invest everything into your 401K while you are young. Yes, using your employer match is a great idea.
The Magic of Dollar-Cost Averaging
I can tell you from experience that your 401K is worthless when you need it. As you start your family, your 401K will serve no purpose than something you look at on the weekends.
You can use Series “I” Bonds during emergencies or major purchases. From the day you get married to when your kids turn 18 is complete chaos—you need to have financial options as things pop up in your life (and they will.)
I recommend maxing out your employer 401k match and building your emergency fund and portfolio of Series “I” bonds. This gives you the maximum balance of growth, retirement, and emergency protection.
Using bonds for investing in your 20s. Once you establish a nice emergency fund via Series “I” Bonds, you can move in a different direction—investing for income.
The Magic of Passive Index Fund Investing
Bonds can appreciate in price over time; however, they differ from stocks. Bonds appreciate versus current interest rates. The par price of a bond is 100.
If you buy a 4% bond at par 100, its price will change against current interest rates. If current rates are 8%, your par value will be 50—the price will decrease.
If current rates are 2%, your par value will be 200—the price will increase. Understanding bond prices and yields may take some time, but keep trying, as it is vital to your investing success.
The 5% bond. At age 20, finding 20 or 30-year bonds at 5% will yield the best results. You can collect tons of income over the years.
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However, interest rates are sure to fall at some point over these years, and you can make a massive profit. For example, if you have 5% bonds and rates fall to 1.5%, you can sell your bonds at this time.
I am not a bond seller, but even the prospect of taking profits intrigues me. I buy 30-year bonds for the income, but one day it may be an excellent time to take profits and invest in growth or dividend-paying stocks.
Income before marriage. While single, I recommend starting an income-investing portfolio consisting of closed-end funds and preferred shares.
The idea is to have $1,000/month of passive dividend income before marriage. This will give you additional resources to get out through the madness.
What If Your House Paid Dividends?
Bonds can also help because you don’t want all your eggs on the stock market. If you can reach $100-200/month on bond income, that would be ideal.
You can also use your bond income to buy higher-yielding baby bonds or bond funds. Anything can happen in the stock and bond markets, so it helps diversify between the two.
Conclusion. Keep your head in the game during your 20s. Don’t buy into the hype of quiet quitting and the great resignation. Stay at work, fund your 401K, and buy bonds.
Use an Automated Business as Your Wealth Generator
You can build a diverse portfolio of safety and income BEFORE marriage as the best way to guarantee a healthier marriage environment. Money plays an oversized role in your relationship, and covering emergencies will prevent many headaches.
I have been married for 16 years, and today we live a comfortable lifestyle. We could have reached this point much earlier with the proper financial education and implementation.
Take it from me; you’ll want to take your 20s seriously. Life is much more fun when you have resources. If your parents don’t give you the financial resources, you’ll have to build them yourself, preferably in your 20s. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. 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. All Right Reserved Military Family Investing
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