It’s been a long time since bonds were attractive during the holiday season. You would have to travel back before 2008 to find such a time.
This year, the Federal Reserve is trying to fight inflation—raising their interest rates hard and fast. Raising rates could cause a recession and higher employment.
This could be a time of fear and despair for ordinary citizens, but you are different. You are taking the time to read ahead so you can get ahead.
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Why are bonds special? Bonds are special because they offer fixed income. Bonds are generally safer than dividend-paying stocks, but you’ll receive a lower yield.
Investing in fixed income allows you to plan your revenue streams more purposefully. A bond will always pay the coupon amount; therefore, the only thing that changes is the price at which you purchase it.
The goal is to buy enough bonds to safely pay for your basic expenses throughout retirement. This way, the stock market won’t affect your day-to-day life.
Happy Cash Flow Retirement 6
The three ways to invest in bonds. It’s exciting that buying bonds is back! But, we want to ensure we understand the various ways to invest in these debt instruments.
The three ways to invest in bonds are compounding growth, capital appreciation, and income generation. Let’s explore each of these methods.
1) Compounding growth. The most powerful force on this Earth is compounding. Everything we do compounds into the world, whether good or bad.
When investing, we want to leverage compound interest from every possible angle. One of the best ways is through Series “I” Bonds.
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I have tons of articles on Series “I” Bonds because they are an exceptional investment vehicle the general population can utilize.
The government reinvests the interest from Series “I” Bonds into the bond. So for 30 years, you get inflation-protected returns as your bonds grow.
Another way to grow your bonds is to reinvest your coupon payments into more bonds. For example, if I received a $100 interest payment from a 30-Year Bond, I could buy any myriad of securities.
I can buy preferred shares, closed-end funds, Series “I” Bonds, dividend-paying stocks, or even more 30-Year Bonds. The idea is to use your interest to purchase more interest-paying securities. Your money makes money.
2) Capital Appreciation. Bonds can also grow in value like stocks. However, bond price growth is much more predictable.
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All you have to do is ask if your bond’s yield is higher than a similar bond today. For example, let’s say the 10-Year Note yields 4.6%.
If you have a 10-Year Note that yields 2.5%, you’ll lose money when you sell the bond. You will need to give the buyer an incentive to purchase your bond.
However, if you have a bond that yields 6.5%, it is worth more in today’s market. Investors will beat on your door to grab your bonds.
I am not a bond trader, but it is good to understand how bonds work as you dig deeper into the economy. Different bonds (corporate, municipal, junk) also have little nuances.
Decrease Possessions. Increase Wealth.
3) Income generation. My favorite way to invest in bonds is to produce income. There are two ways to create income from bonds: on and off the stock market.
I like to buy bonds from Treasury Direct because they don’t trade on the stock market. As long as I hold to maturity, these bonds will keep paying me.
However, bonds on the stock market usually trade in ETFs and closed-end funds. Bond ETFs like (BLV), don’t use leverage and give you yields similar to their Treasuries counterparts.
Bond closed-end funds use leverage to juice your returns. It is common to get 10-12% on Pimco CEFs like (PDO), (PTY), and (PDI).
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I use a combination of off-market, Bonds ETFs and Bond CEFs, to generate income for today and tomorrow. In fact, my wife and I recently reached $1,100/month in dividends.
Bonds for the holidays. My main goal is to retire early (before 50) and be a massive part of my family’s lives. I want to spend every holiday I can with my kids and grandkids.
I understand that this will take a massive amount of cash flow; that’s why bonds are vital to your bottom line.
We spend our lives earning a paycheck, so we carry that mentality directly into retirement. That is why many people don’t retire until they reach social security age.
Bonds allow us to build our own paycheck. The earlier we develop our portfolio of bonds, the sooner we can consider retiring.
Dividends vs. Royalties part III
Dividend-paying stocks are a great way to earn income, capital appreciation, and compounding growth. However, we must follow our favorite stocks to ensure the business runs well.
When you buy US Treasuries, they “set it and forget it.” You buy your 30-Year Bond, put it on your tracker, and don’t worry about it for 30 years.
The magic of bond investing is the hands-off element of the process. Series “I” bonds can be even more hands-off because you can automate your purchases.
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Conclusion. This is going to be a fantastic Thanksgiving season. You can make it even better by purchasing Series “I” Bonds for everyone at the table.
As we enter the Christmas giving season, we want to look ahead for our friends and family. Buying gifts for others is a special present in and of itself.
However, buying Series “I” Bonds for others will serve a better long-term purpose. Many children enter their 20s without any financial support from their families.
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Children with some financial help do much better in life than others. These are topics to consider as you spend time with your family this year.
Are you preparing yourself and your family for the financial burden of living in America? Do you understand why bonds are vital to the health and well-being of our family and its future?
I like taking a deep look at how financial education can change lives. Please enjoy your Thanksgiving and holiday season, and ask if you are paying it forward for yourself and your family. Happy Holidays!
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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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