You’ve heard the old investing advice: “buy low, sell high.” But what if we told you that selling isn’t the only way to make money from your investments? Today, Nicole breaks down three easy, low-maintenance ways to generate income: bonds, high-yield cash accounts, and dividend stocks. Whether you’re looking to diversify your portfolio or just want your money working for you while you do literally anything else, this episode has you covered. To start exploring your passive income options today, go to public.com/moneyrehab All investing involves the risk of loss, including loss of principal. Brokerage services for US-listed, registered securities, options and bonds in a self-directed account are offered by Open to the Public Investing, member FINRA & SIPC. Public Investing offers a High-Yield Cash Account where funds from this account are automatically deposited into partner banks where they earn interest and are eligible for FDIC insurance; Public Investing is not a bank. Treasury accounts offering 6 months T-Bills are offered by Jiko Securities, Inc.,member FINRA & SIPC. Securities in your account are protected up to $500,000. For details: www.sipc.org. Banking services and the Bank Accounts are provided by Jiko Bank, a division of Mid- Central National Bank. For U.S. Investments in T-bills: Not FDIC Insured; No Bank Guarantee; May Lose Value. Treasuries risk disclosures, see https://jiko.io/docs/treasuries_risk_disclosure.pdf. See public.com/#disclosures-main Advisory services for Treasury Accounts are provided by Public Advisors, an SEC-registered investment adviser. Public Advisors and Public Investing are affiliates and both charge a fee for their respective services. For more details, see Public Advisors’ Form CRS, Form ADV Part 2A, Fee Schedule, and Treasury Account page. *4.1% APY as of 2/4/25. APY is variable and subject to change.
Chapter 1: What are passive income strategies for investing?
I'm Nicole Lappin, the only financial expert 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 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.
Chapter 2: How do bonds generate passive income?
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.
Chapter 3: What key terms should you know about bonds?
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 U.S. government is 4.19% yield. So generally speaking, if you invested $100, you would get back $4.19 after a year because $4.19 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 $1,000 bond with a 5% coupon, you'll receive $50 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 coupon rate 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.
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Chapter 4: What are the different types of bonds?
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 on to 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?
Chapter 5: How do corporate bonds differ from treasury bonds?
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 S&P Global and Moody's rate corporate bonds based on how likely a company is to repay its debt.
Chapter 6: What factors should you consider before investing in bonds?
The best rated bonds are AAA, super safe, while lower rated bonds like BBB 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, 0.07% or 4.1%? I'll wait. And the high yield cash account for public is FDIC insured up to $5 million. The thing to keep in mind is that interest rates can change.
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