We rarely get to compare two completely opposite things—usually, there is no point. However, let’s make an exception in this case because both investment vehicles can help us reach our financial goals.
Buying treasury bonds and trading options are about as far apart on the risk totem pole as possible. Treasuries give investors a risk-free opportunity (when holding until maturity).
Trading options is perhaps the riskiest thing the average person can do without being designated an accredited investor and becoming an angel investor.
Fundrise vs. US Treasuries
So why compare the two? Because the average family needs to understand and leverage these investments to reach and secure their financial goals. Let’s get started.
Why invest in US Treasuries? US Treasuries give us the ability to invest our money without risk. When we buy Treasuries directly from the US government, we put our full confidence in the US economy and future.
There are many types of Treasuries, so getting to know them all is vital to making investment choices that match our risk profile, timelines, tax situation, and payment choice.
- Treasury Bills have short durations of less than one year.
- Treasury Notes have durations between 2 and 10 years.
- Treasury Bonds have durations between 20 and 30 years.
- Series “I” Bonds compound our savings while adjusting for inflation.
- Series “EE” Bonds double in value in 20 years.
- Treasury Protected Inflation Securities (TIPS) are bonds with inflation adjustments.
The main draw of US Treasuries is that they are safe, and you can use them in emergency funds, savings, college funds, and as growth vehicles.
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Why trade options? On the other end of the risk spectrum are options. Most people do not have the temperament to trade options because they must accept losing money at some point.
The stock market only has two ways to travel: up and down. You purchase a call option if you predict the market will move up.
If you predict the market will go down, you will purchase a put option. From there, everything can become as complex as you make it.
People trade options because you can make a lot of money very quickly. The downside is that you can also lose money just as fast. Here are some excellent places to start.
- Selling covered calls for passive income.
- Selling cash-secured puts for passive income.
- Trading long strangles for passive income.
The main draw to options trading is making what you earn in a year with Treasuries (say 5%) in a week. Options are only as dangerous as their owners; you can manage your risk.
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How to manage risk while trading options. Most treasury investors don’t trade options; they are not usually the same demographic.
However, the patience you learn from investing in treasuries can be a massive asset while trading options. Most people lose with options because they only go for the big wins.
But what if your goal was only to earn 10% of your money per month? You stand a great chance of hitting this goal every month while playing it safe.
Let’s look at ways to play it safe on the stock market, using the discipline we learned while investing in Treasuries.
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Let’s invest $10,000. First, put $10,000 in 5-year Treasury Notes at 5%. These notes will pay us $250 semi-annually, for $500 per year.
Now, let’s use another $10,000 to purchase cash-secured puts or covered calls on Palantir (PLTR). Palantir trades at $15.59, so we can buy six option contracts.
As you can see from the options chain, we can safely make $510 selling calls at $17 (a month out). And the same selling cash-secured puts at a $14.50 strike price.
We can also do weekly long strangles by purchasing $5,000 worth of puts and $5,000 worth of calls. We could aim to make 5% per week for $2,000 monthly.
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Putting it all together. Those who have great success in life have taken significant risks. I would love to say earning 5% per year with US Treasuries would make you rich, but it won’t.
We must use Treasuries to protect us in the present. However, we need a growth element to ensure our future is secure.
You can use the profits from options trading to purchase more Treasuries—that is the sweet spot. Don’t keep building a more extensive options portfolio if your goal isn’t to be a full-time options trader.
Most people can’t make $500 per week by trading options; it’s simply too difficult for them to imagine losing any money.
CD Ladders vs. Treasury Ladders
However, you have to use money as a tool to leverage options. People lose money all the time; they just don’t see it.
When they purchase a new car, they lose 30-40% by driving it off the lot. Their house value fluctuates every month.
They lose money to inflation, even when they invest in Treasuries. The only way to stop the bleeding is to have a high-earning skill like options trading.
The balancing act. The good thing about options is that you don’t need much money for a great return.
You may need $100,000 in your Treasury account to generate solid returns but only $5,000 in your option portfolio.
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The best thing you can do before trading options is to know exactly how much you want to make and why.
Let’s say you want to pay for your golf habit, which costs $200 per week. Therefore, you need to make $800 per month.
You can easily do this by allocating $20,000 to cash-secured puts and covered calls or $4,000 to weekly long strangles.
The more money you have in safe Treasuries, the more you can risk while trading options. Don’t put any money into your options portfolio you are unwilling to lose.
Treasury Bonds vs. Municipal Bonds
Conclusion. It takes great wisdom to invest in US Treasuries and protect your capital. However, it is not a winning formula for beating inflation, saving for a kid’s college, or buying more homes.
You’ll need more than US Treasuries to build generational wealth. So you’ll need to pick your poison: get into real estate, start a business, write books, or grow a large dividend portfolio.
Trading options is a valuable resource to generate income that you can then move into other endeavors. “There are no risky investments, only risky investors,” said Robert Kiyosaki.
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You can mitigate the risk/reward profile by controlling your emotions, focusing on your goals, and not becoming greedy.
If you purchase US Treasuries, you already understand the value of your money. You also should know that zero risk will get you only a small reward.
If you can stomach a learning curve, options trading may be your desired growth element—without taking over too much of your life. 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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