Why Bond Coupons Are a Low-Risk Form of Passive Income

A low-risk form of passive income 💪🏼

• Passive income streams usually require a lot of initial work and may require constant attention, so it’s not entirely “passive”.
• Investments and side hustles are two broad ways to earn passive income, but you should be patient and expect to start slow.
• Coupons are regular fixed payments made to the bondholder, which can also be another excellent form of passive income for investors.

Bond Coupons

Bonds are debt instruments that act like an IOU in financial markets. The buyer of a bond is lending money to the bond's issuer. Almost always, this is in return for a fixed stream of payments (coupons), which with the purchase price gives the buyer a rate of interest and is repaid in full when the maturity date arrives. 

Why Are Bonds Issued?

Issuing bonds is similar to taking out a loan, except the issuer borrows money from investors, not a bank. When governments wish to borrow money, they often issue bonds. Companies do this, too, to fund things such as capacity expansion, investments or regular working capital.

Pretty much all bonds have coupons attached. Coupons are regular fixed payments made to the bondholder, which can be an excellent form of passive income for investors. Though usually a lower return instrument than shares, bonds can still be an attractive long-term investment as they tend to be more stable and, in a crisis, safer. Most bonds are bought and sold in large sums, so it's pretty common to have “bond exposure" through bond funds or balanced funds (which include both bonds and shares).

Bond Funds/Exchange Traded Funds (ETFs) 

are easier ways to own bonds than directly investing in all the bonds held in a fund. By choosing to invest in a bond fund, your money is going into a professionally-managed portfolio of bonds. 

What Are the Benefits of a Bond Fund?

Bond funds are simply more convenient. Many investors do not have the time (or the ability) to analyse the factors determining a bond's price.

Moreover, you’re not just saving time in choosing the bonds. Once invested, you don’t have to worry about administrative work often involving bonds, such as statements for every transaction. All you have to do is keep tabs on the unit's price.

Bonds as Part of a Balanced Fund

Another popular way of gaining exposure to bonds is to invest in a balanced fund, also known as an asset allocation fund, a type of mutual fund (or unit trust) that usually contains a blend of stocks and bonds. 

A balanced fund typically has a specified make-up of stocks and bonds; for example, 60% stocks and 40% bonds. Balanced funds make it easy for investors to diversify without needing a huge sum of money, plus there are no complex decisions to make or paperwork to deal with. 

Other Ideas:

PASSIVE INCOME IDEAS: BOND COUPONS. COMPLETED. ✅

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