← Money Rehab with Nicole Lapin
Loading summary
Transcript6 lines
- [00:00]
Nicole Lapin
Foreign.
- [00:02]
Morgan Lavoy
I'm Nicole Lapin, the only financial expert.
- [00:04]
Nicole Lapin
You don't need a dictionary to understand. It's time for some money rehab. I'm sure you've heard the Wall street cliche by now. Buy low, sell high. But selling stocks isn't the only way to make money from your investments. You can actually make your money work for you through passive investing income. Passive, meaning your money is working for you while you just sell, sit back and let it do its thing. Today I'm going to be talking about three very low maintenance ways to generate income. Bonds, high yield cash accounts, and dividend stocks. These options are great for those of you who want to invest but don't want to be glued to a stock ticker all day long. Or you just want some diversification in your portfolio. All right, let's get into it. First up, bonds. The set it and forget it investment. A bond is essentially an iou. When you buy a bond, you're lending money to a government or a company. And over time you get paid interest. And when the bond reaches its maturity date, you get your original investment back plus that interest. Now, before we get into different types of bonds, let's break down some key terms. When you learn about bonds, you're going to hear the term maturity period thrown out a bunch. I mean, as you just noticed I said it a second ago, a bond's maturity period is essentially how long your money will be invested and earning interest. The next term you should know is yield. This is the return you earn on a bond expressed as a percentage. It's calculated by taking the bond's annual interest payments and dividing it by the bond's current price. So for example, at the time I'm recording this, the yield for a one year bond issued by the US government is 4.19% yield. So generally speaking, if you invested 100 bucks, you would get back $4.19 after a year. Because 419 is 4.19% of 100. And here's the last one. Coupon rate. This is the fixed interest rate the bond pays. For example, if you buy a thousand dollar bond with a 5% coupon, you'll receive 50 bucks per year in interest payments until the bond matures. If you're thinking that coupon rate kind of sounds similar to yield, here's the difference. The coup is the fixed interest payment based on the bond's original price. While the yield fluctuates depending on the bond's current market price. So if the bond's price drops, the yield goes up and vice versa. It's like a seesaw, but the coupon rate always, always stays the same. All right, with those basics out of the way, let's look at two major types of bonds, treasury bonds and corporate bonds. Let's start with treasury bonds. Treasuries are bonds issued by the US Government. They're considered one of the safest investments out there because Uncle Sam always pays his debts. Within this category, you're going to find a few different types of government bonds with different maturities. Treasury bills, also known as T bills, are short term bonds that mature within a year or less. Treasury notes or T notes are medium term bonds with maturities between 2 and 10 years. Treasury bonds or T bonds are long term bonds with maturities of 20 or 30 years. Now onto Corporate Bonds Corporate bonds are bonds issued by companies instead of the government. These bonds often give higher yields than Treasuries, but with higher rewards comes say it with me now. Higher risk If a company goes bankrupt, bondholders might not get paid back in full. So how do investors evaluate whether a specific bond is a good investment or not? Credit ratings, liquidity score, and whether the bond is callable are usually three factors investors evaluate before investing. A bond's credit rating is essentially a measure of risk. Agencies like SB Global and Moody's rate corporate bonds based on how likely a company is to repay its debt. The best rated bonds are Triple A Super Safe, while lower rated bonds like Double B or Lower are riskier but might offer higher rewards. A bond's liquidity score tells you how easy it is to buy or sell the bond. If a bond isn't traded very much, it might be harder to sell when you need the cash. So think about this like you're selling a house. If you put your house on the market and no one is buying houses at that time, you can't bank on the fact that you can get cash from selling your house quickly. Lastly, some corporate bonds are callable, which means a company can pay them off early. This isn't great for investors because if interest rates drop, the company might decide to pay back the bond early and reissue new ones at lower rates, leaving you without those juicy interest payments. Tons of companies issue corporate bonds like the big companies you're seeing in the headlines. Apple, Microsoft, Alphabet, the parent company of Google, Nvidia, Amazon, and even private companies that you can't even buy through investing on public markets. Because bonds deliver a lower risk and usually fixed return, bond investing can act as a more passive investment than something like stock trading. To get that True recurring income that passive income stands love. Some investors use a strategy called a bond ladder. This is when you buy multiple bonds with different maturity dates. The idea is that as each bond matures, you reinvest the money into a new bond, keeping a steady stream of income rolling in while taking advantage of changing interest rates. For example, let's say you invest in one year, three year and five year treasury bonds today. In a year, when that first bond matures, you roll it into a new five year bond. The next year, the three year bond matures and you roll that into another five year bond. This way you always have bonds maturing and giving you access to cash while keeping your investments working for you. All right, that's the need to know on bonds. Next up, High Yield Cash accounts. If you want to generate passive income, High yield cash accounts are where it's at. This is just a place to park your cash, almost like a checking account. But high yield cash accounts offer significantly better interest rates. The average interest rate for a checking account right now is 0.07%. Yep, you heard me right. That is less than 1%. But high yield cash accounts offer much more than that. Public, the investing app that I always talk about is offering 4.1% on their high Yield cash account right now. And what would you rather have? 0, 7% or 4.1%? I'll wait. And the high Yield cash account for public is FDIC insured up to 5 million bucks. The thing to keep in mind is that interest rates can change. But since high yield cash accounts are totally liquid, meaning you can access your money at any time, you can always move your cash when you need to without penalty. Now let's talk about dividend stocks, which may be my favorite way to make passive income. Here's how they work. When you invest in a stock, you usually make money in two ways. Capital appreciation, which is just a fancy term for saying the stock price goes up, and dividends. Some companies issue investors a portion of its profits and that monetary thank you gift from the company is called a dividend. Dividends are usually paid out quarterly, although some companies pay them out monthly or annually. The amount you receive is based on something called the dividend yield, which is the percentage of the stock price that the company pays out in dividends. Not all companies issue dividends, but some of the well known companies that do are companies like Johnson and Johnson, Coca Cola, Procter Gamble, and McDonald's. These companies are known as dividend aristocrats, meaning they're in the s and P500 and they've increased their dividend for at least 2025 consecutive years. Dividends are an awesome way to get a little boost in your brokerage account, but if you don't need to use them right away, you can always enroll in a dividend reinvestment plan or a drip. With a drip, instead of receiving cash payouts, your dividends are automatically used to buy more shares of the stock. This helps your investments compound over time, meaning your future dividend payments get larger and larger. For example, let's say you own a hundred shares of a dividend stock paying a dollar per share annually. That's a hundred dollars in dividend year. If you reinvest those dividends, you'll own more than 100 shares by next year, which means your next dividend payment will be even bigger over time. This snowballs into some serious Money Passive income does not have to be complicated. With bonds, high yield savings accounts and dividend stocks, you can build a steady stream of income without constantly checking your stock portfolio. Okay, so you're all in and you want to learn more? Here's my secret. Public is my go to platform for all things investing. On public you can find dividend generating stocks earn 4.1% APY with their high yield cash account and buy corporate bonds and Treasuries with great interest rates. On Public you can even build a Treasury ladder which will lock in yields with staggered maturities for a steady passive income stream. And on Public you can look at your income hub where you can view your monthly breakdown of your earnings from every income generating asset you own so you know how your money is working for you. This brings me to today's tip. You can take straight to the bank to get started with Public just head over to public.com moneyrehab which is also linked in the show notes.
- [09:33]
Morgan Lavoy
This is a paid endorsement for Public Investing. Full disclosures and conditions can be found in the podcast. Description Money Rehab is a production of Money News Network. I'm your host Nicole Lapin. Money Rehab's Executive producer is Morgan Lavoy.
- [09:49]
Nicole Lapin
Our researcher is Emily Holmes.
- [09:51]
Morgan Lavoy
Do you need some Money Rehab? And let's be honest, we all do. So email us your money questions moneyrehaboneynewsnetwork.com to potentially have your questions answered on the show or even have a one on one intervention with me and follow us on Instagram @moneynews and TikTok MoneyNewsNetwork for exclusive video content. And lastly, thank you. No seriously, thank you. Thank you for listening and for investing in yourself which is the most important investment you can make.