This is the summary of Episode 6 of our Roaming Returns Podcast.
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Podcast Summary
Worthy Bonds is a great fit if you’re looking for pretty high interest, the passive component and fixed income payouts.
If you’re already sold sign up using our referral link to get a free $10 bond. This gives us a free one too, so thanks in advance!
What Is Worthy Bonds?
How Does It Work
It’s not like your typical bonds in the stock market. kind of like a treasury bond, but these don’t have maturity dates. They used to when you had to go back and reinvest on your own, but they’ve been growing and improving.
Similar to a croudfunding peer-to-peer type thing but it’s for small businesses.
This is the only option for lending for certain sized businesses. Which is very similar to BDCs. They can’t go to regular banks. They had to create another way for small businesses.
You don’t need to be accredited investor to invest in Worthy Bonds.
We like it because they created it as a win win for the small businesses and for the investors who arent accredited and want to help small businesses.
The CEO wants to make this opportunity available to everyone not just the 1%.
Small businesses can’t go to regular banks so they have to go to companies like HTGC or worthy to take out loans to grow their businesses.
They pay your a great yield for fairly minimal risk. If you’re not comfortable with that don’t invest with Worthy, but you also probably shouldn’t be investing in the first place anywhere.
create other post for FDIC insurance details.
Offer different kinds of accounts. IRAs, Business, Charities, Trusts, etc.
How Worthy Mitigates Risk
They’re not FDIC insured but instead they require each company to put up collateral to back the loan and they won’t lend out more than 2/3 of the collateral value.
They also take 40% of investor money and invest in real estate, US Treasury Securities, and CDs. This is to reduce the risk and retain the value of your principle.
The CEO sounds confident and competent that the company will be able to retain that 5.5% interest base number in future. They offer promotions like right now which can happen as interest rate climates shift.
Businesses always have to borrow money to operate so lenders are always lending. The interest rates and terms are the things that shift and when rates go up, Worthy also increases the investors proceeds.
They borrow from us at 5.5% and lend it out at say 7%. Everyone wins.
More and more companies are starting to leverage the public’s ability to contribute to their business model much like Uber did. AirBnb is another one that’s doing something similar.
Pros Of Worthy Bonds
Low Cost Of Entry
Typical bonds cost $1,000 to purchase just 1 bond whereas with Worthy you can get started with just $10. That same $1,000 will get you 100 Worthy Bonds.
This is nice because when you withdrawal, you can pull your money out in $10 increments as well.
High Liquidity
Unlike traditional bonds, there are no term dates or fees for cashing in and pulling your money out. You can take your money out at any point without any hoops.
It’s really simple. We’ve taken $10,000 out without any issues. And that money shows up in your bank account in 4-5 business days.
Other alternative investments like Fundrise and Yieldstreet only allow you to take your money out 4 times a year. They are specific windows much like the Health Insurance Enrollment period at the end of each year.
No Fees Or Penalties
Bonds can cost you fees or be a pain to sell if you want to before the term date because you’re subject to the market value and what the buyers are willing to pay.
Fundrise has substantial penalties for early withdrawal. They charged Tim 20% on his earnings for taking his money out.
Pays More Than Grade A Bonds
At the time of the recording Worthy was offering more interest yield than the grade A bonds available in the stock market.
Their base interst rate is 5.5%, but at the time of airing Worthy was running a promo for 6%. Worthy just bumped their promo up through November 2024.
Don’t let your money sit in a traditional savings account making only 0.43% (current average) when you could be making at lest 5.5% or more on promotions.
If you’re money’s sitting in the bank earning less than 3% you’re losing money to inflation.
Less Market Dependent
The cost of each bond for Worthy has always been $10 unlike the fluctuations in price with traditional bonds. The interest is depending on overall interst rates, but not as significantly or volitle as regular bonds.
Low Risk
We talked about how Worthy mitigates risk up in the section about how the company works. We believe Worth Bonds are more secure than many other types of investments including the majority of bonds because of their collateral and first lein strategy to pay investors back.
First lien means that if the company defaults and their assets are auctioned off, Worthy is the first creditor paid. As investors in Worthy that creates a big hedge against payout risk for us.
Risk is higher when you don’t have something like Worthy set up and you need to liquidate assets in a brokerage account at an inopportune time.
It’s Completely Passive Investing
With all the features Worthy offers you’re investing easy and it’s passive. You can even set up roundups or automatic investing amounts to make growing your investment completely passive as well.
you connect your bank account and debit card to do roundups.
Compounds Daily
Your principle compounds automatically and on a daily basis. Which is you understand compounding.
They psychological aspects of seeing your money grow day in and day out, this makes you excited and wanting to save more money.
Helping Small Businesses
Investing in Worthy allows your money to go towards a bigger cause and potentially ripples out to larger impacts in communities that the companies they lend to. Those companies can grow and hire people.
We love this and believe it’s a worthy cause. Win – Win – Win -Win we like companies that do things like this.
Studies show that when you help a community it has a bigger ripple effect onto more families than if you just help one family. We’re looking to contribute to things with bigger leverage points when we can.
Cons
Not FDIC Insured
see above
They Aren’t Always The Highest Interest
Due to competative rates and companies, Worthy isn’t always the highest yeilding alternative to a traditional saving account outside the stock market.
We don’t bother being on the constant hunt for a few decimals difference when Worthy is so easy and has so many perks.
They Only Issue $50 Million Bonds Each Year
They have to do this to conform with the SEC Federal Lending requirements. So if you don’t get in in time, you have to wait until the following year.
But if this happens, you can move your money into Bullet Shares until you can get back into Worthy.
Has Investment Caps
You can only invest 10% of your annual income or net worth. And you can’t invest over $50,000. They don’t seem to be monitoring the bottom threshold of this, sooooo.
Accredited investors have higher limits because they have less stringent requirements per the SEC.
Withdrawals Aren’t Instant
This is really only a con if you’re comparing it to a HYSA (high yield savings account) where you may be able to instantly transfer money to your checking if that’s an option.
But honestly most of the highest yielding savings accounts are with credit card companies where you don’t have a checking account so you’ll run into the same thing with 4-5 day transfers.
That extra step to get money into your checking account might the hurdle that reminds you to stop and double check that you’re going to be spending that money intentionally.
Otherwise if you compare it to the liquidity of traditional bonds, Worthy beats that hands down!
Only Available In The US (For Now)
Worthy is only available for American citizens. But they do have plans to expand to the EU.
Alternatives
HYSAs
There are so many HYSAs on the market these days and it isn’t feasible to name any 1 here. Interst rates are always changing and companies are adjusting their rates to remain competeitive.
I agree with Ramit’s views on these HYSAs that it’s not worth the energy to keep hopping aroudn for the best rates to make a few extra bucks. Find one your like (he recommends Capital One 360 because of high competative rates and the ability to make sub savings accounts for specific savings goals. )
The other thing with many HYSAs, they often have minimums, promotion terms, and fees. Choose what works best for your lifestyle.
Our friends at FnA Vanlife use SoFi.
I-Bonds
This is a government bond tied directly to interest rates and inflation. It deviates too much for our liking.
MainVest
Like a peer to peer site but you have to manually pick the companies you’re going to invest in. This is a good option if you want more control. The money in here is getting a higher percent but its also tied up for year. No liquidity.
BulletShares
Only option that’s not in the stock market. But it’s our favorite counterpart cash holding account to worthy.
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