Bonds 101: How to Add Stability (and Income!) to Your Portfolio
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Why should you consider investing in bonds?
I'm Nicole Lappin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab. When it comes to investing, a lot of people think about stocks first. And hey, I totally get it. Stocks are very exciting. But bonds? Bonds do deserve a little bit more love.
What are the benefits of bonds over stocks for passive income?
If you're looking for a way to earn passive income with lower risk than stocks, bonds might be your new best friend. Today I'm talking to a money rehabber who wants to start investing in bonds but isn't sure where to start. We'll go over the basics, break down key terms, and figure out how bonds can fit into her financial goals. So let's get into it. Sierra, welcome to Money Rehab. So what's your question?
I've been investing for a couple of years now and I'm starting to see steady growth in my portfolio.
That's awesome.
Yeah, but that really bad day in the market the other day made my portfolio drop and that really freaked me out. I've heard you say on the show before that it's important to diversify, but I'm only invested in stocks right now. So everything that happened with that market dip is making me feel like I should really probably consider bonds more seriously and actually start diversifying.
How can bonds help diversify your investment portfolio?
Oh, great. Okay. So there's a lot to talk about here. I love that you're thinking about diversification. So you're not invested in bonds, but you're invested in stocks. Have you been picking individual stocks or investing in equity funds?
A little bit of both, but mostly funds.
Awesome. How much do you have invested?
I have about $75,000 in my portfolio.
And you have no bonds?
Girl. I know.
It's totally okay. We can fix this. How old are you, by the way? I'm 27. Okay. Well, good for you for starting so early. I love to hear that. And it is common for younger investors to focus on equities or stocks because equities have a reputation for delivering higher rewards than bonds. but they are higher risk higher reward which is why you see some people phase those out and opt into more bonds as they get older because they're more steady so let's talk about financial goals are you invested for retirement passive income something else i guess just overall financial well-being
I don't have a particular goal in mind. I'm renting right now. I'm probably want to buy a house at some point, but that still feels kind of far off. So I just want to grow my net worth.
What are the different types of U.S. Treasury bonds?
Love it. Okay. So let's talk about diversification. If anyone listening doesn't know diversification is the investing version of don't put all of your eggs in one basket. So have you started thinking about how bonds might fit into your portfolio?
Not really. I'm open to just generally learning more.
Cool. So essentially, a bond is an IOU. Most people know that the U.S. government issues bonds, but so do other governments, municipalities and companies. We have to talk about U.S. bonds or treasuries because they're a really solid investment. But I also want to talk about corporate bonds because not enough people know about them. Sound good? yeah love it great so treasuries are bonds issued by the us government which makes them one of the safest investments out there because if the us government goes down we have more to be concerned about than our bond investments it's the zombie apocalypse stuff but So they come in a few flavors, treasury bills or T-bills, and those are short term bonds that mature in a year or less.
How to choose the right bond for your financial goals?
Then there are T-notes, treasury notes. They mature between two and ten years. And then for the long haul, there are T-bonds and they mature in 20 or 30 years. Any questions about that?
I guess my question would be, how do you choose which one?
Well, that's going to be very personal based on your goals, but I can tell you what I do. I typically look at the yield, which is how you can determine how much you'll earn in interest from the bond investment if you keep invested until the bond fully matures. Typically, I just want to earn as much money as I possibly can. But there are also other personal factors like when you need the money back. If you wanted to buy a house in the next two years, for example, I wouldn't put my entire savings into a 30-year bond because I would need it in two years. You know what I mean?
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Chapters
6 chapters
1
Why should you consider investing in bonds?
0:02–0:25
2
What are the benefits of bonds over stocks for passive income?
0:25–1:12
3
How can bonds help diversify your investment portfolio?
1:12–2:22
4
What are the different types of U.S. Treasury bonds?
2:22–3:17
5
How to choose the right bond for your financial goals?
3:17–4:24
6
What is a treasury ladder strategy?
4:24–9:35
Speakers
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