{"id":13965,"date":"2025-04-23T06:11:50","date_gmt":"2025-04-23T06:11:50","guid":{"rendered":"https:\/\/finderica.com\/?p=13965"},"modified":"2025-04-23T06:11:50","modified_gmt":"2025-04-23T06:11:50","slug":"how-to-earn-8-or-more-outside-the-stock-market","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=13965","title":{"rendered":"How to Earn 8% or More Outside the Stock Market"},"content":{"rendered":"
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Last week, I discussed two strategies for generating income in this tough market environment. While selling covered calls and naked puts is a conservative strategy, some investors prefer more of a \u201cset it and forget it\u201d approach.<\/p>\n

Fortunately, there\u2019s a simple solution.<\/p>\n

Bonds.<\/p>\n

You may have never invested in a bond, but they\u2019re actually easier to understand than you might think.<\/p>\n

When you buy stock, you own a piece of the business. But when you buy a bond, you are a creditor to the business. As anyone who\u2019s ever owned a business knows, creditors get paid before owners. Otherwise, the creditors take your business.<\/p>\n

A bond is a contract between a borrower (the company) and a lender (the bondholder). The company must pay bondholders a predetermined amount of interest on specific dates and then pay the loan off in full on the maturity date. No ifs, ands, or buts. There is no wiggle room. If the company does not live up to those obligations, it is in default, and bankruptcy proceedings start.<\/p>\n

If a stock falls in price, you have to pray to the investing gods that it will come back up and make you whole.<\/p>\n

If a bond falls in price, it doesn\u2019t matter, because the company will pay $1,000 per bond on the bond\u2019s maturity date, no matter what. If it doesn\u2019t, it\u2019s in default.<\/p>\n

Bonds are incredibly safe. Investment-grade bonds default at a minuscule rate \u2013 way less than 1%. Non-investment-grade bonds, also known as high-yield or junk bonds, default around 4% of the time. However, the overwhelming majority of those defaults are from the lowest-graded bonds, rated CCC or lower. A bond with a grade of B- or higher has a very low chance of default.<\/p>\n

Lastly, my favorite feature about bonds is that you know exactly how much you are going to make over a specified period of time. You\u2019ll never have that kind of certainty with a stock.<\/p>\n

Here\u2019s what I mean.<\/p>\n

Let\u2019s say you buy a bond at a discount for $950. The bond matures in two years and pays a coupon of 5%. The coupon is based on the $1,000 par value, so the bond will pay $50 per year in two installments of $25 each.<\/p>\n

Because you bought the bond at $950 instead of $1,000, your yield is 5.3%. Additionally, you\u2019ll earn a $50 capital gain because you bought the bond for $950 and it will mature at $1,000.<\/p>\n

In total, you\u2019ll have made $100 in interest and $50 in capital gains for a total return of 15.8%, or 7.9% per year. Even better, you\u2019ll know what that expected gain is before you ever hit the buy button on your broker\u2019s website.<\/p>\n

Bonds provide both income and security, with no exposure to the stock market\u2019s volatility.<\/p>\n

If the wild swings of the stock market are causing you stress, consider moving some money into individual bonds.<\/a><\/p>\n<\/p><\/div>\n