Updated: Mar 10, 2021
An investment opportunity can be a one-two punch of diversification if it makes you solid money and if it's not too correlated with the traditional markets like the stock market. Fortunately, most posts on this blog share investment opportunities just like that. Today's entry is a star in that arena. Worthybonds is a legitimate alternative investment earning a fixed 5% interest on every $10 invested in a Worthy Bond. Investing in Worthy Bonds supports small businesses without the volatility of public trading markets, resulting in a lot less risk. This post will show you the pros and cons of Worthy Bonds as a possible passive investment.
How to Make Money with Worthy Bonds
In order to build real wealth, you need your money to make more money-- kind of like little employees of your own working 24-7. At the time of this writing, if you keep your savings in a traditional bank account, your money would have a ridiculously low-interest rate and lose value because of inflation.
Worthy Bonds will give you a substantially greater return, yet remain relatively safe compared to other investments with similar yields. In addition, Worthy Bonds is the perfect investment for anyone who would rather invest in Main Street than Wall Street. By investing in Worthy Bonds for $10 each, you help small businesses meet their goals and perhaps survive the current global crisis. These same businesses pay back their loans with an interest rate higher than 5%, so that investors can get the 5% annual yield.
An added feature of Worthy Bonds is that you don’t have to decide which specific loans to invest in. Instead, when you purchase a Worthy Bond for $10, you're actually investing in a portion of every business loan in the Worthy portfolio. This diversification strategy greatly limits risk and has been successfully used by peer to peer lending platforms like Prosper for decades.
How Do I Invest In Worthy Bonds?
To begin investing with Worthy Bonds, you must first sign up on the platform. Upon signing-up and then logging into Worthy, you’ll have a list of options in regards to what kind of account you'd like to open. Most likely, you'll choose an individual account, but you may also select a Trust Fund or IRA account. Funding your account entails linking your bank account to your newly formed Worthy investment account, which may take a few days.
Once funded, you can finally begin investing. You can buy bonds in $10 increments. You can make this purchase as a one-time event or make it a recurring contribution each month. Worthy also gives you the “spare change” option that basically rounds up your credit card and debit card purchases, creating spare change. When those round-up savings reach $10, a Worthy Bond is purchased automatically. This is similar to the investment strategy of Acorns.com, which we will talk about in a future post.
You can also use Worthy Bond's automatic re-investing option, which reinvests your earnings back into your account. When activated, a new Worthy Bond is purchased when you reach $10 in earned interest. Non-accredited investors can invest up to 10% of their annual income. However, accredited investors can purchase up to $50,000 in Worthy Bonds in an instant.
The best news is that Worthy Bonds are actually more liquid than you'd think. While Worthy Bonds have a 36-month repayment term, you can withdraw your money earlier than that without penalty! In addition, if your withdrawal is small, your funds will be deposited instantly.
Advantages of Investing with Worthy Bonds
The biggest advantage is the consistent yield of 5% interest on the bonds you buy. That is impressive when you consider similar yields on other investments like REITs (Real Estate Investment Trusts) are rarely as safe. Real estate and stock markets may sometimes offer more gains, but the risks are greater.
Other PROs worth mentioning:
1) Worthy Bonds only invests in asset-backed loans that can’t exceed 66% of a business’s net worth. Therefore if a loan goes into default, Worthy Bonds can use the business’s collateral to recover the balance.
2) Worthy Bonds are registered with the U.S. Securities and Exchange Commission (SEC).
3) You don’t have to be an accredited investor. Any U.S. citizen over the age of 18 can invest for as little as $10.
4) As mentioned earlier, Worthy spreads the risk by diversifying your investment over all the small business loans in their portfolio.
5) No fees. You pay nothing extra for buying Bonds, nor for withdrawing money.
6) The knowledge that you are helping small businesses everywhere in the U.S. is a big plus.
The Downsides to Worthy Bonds
There are not as many drawbacks to investing with Worthy Bonds, but the main one is a worthy concern nearly all investments have. What happens if the economy tanks? At the time of this writing, small businesses are suffering around the world. The Worthy Bonds business model is too young to really understand how it will be affected by economic downturns, including this one. Then again, with the stimulus bills from the central government (the largest on record), maybe Worthy Bonds will remain unscathed.
The good news is that besides the loans being backed by assets, Worthy also has cash reserves in case they can’t recover loan balances.
Like all investments mentioned on this blog, before you hand over your hard-earned money, it's important you understand your risk tolerance. While the risks are minimal, investing with Worthybonds is still dependent on the overall economy. The good news is you can start small. You can invest as little as $10 without paying any fees. With dollar cost averaging and 5% interest compounded over years, your portfolio could grow into a solid nest egg.