[Worthy Bonds]

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Topic Author
arcane
Posts: 37
Joined: Mon Oct 01, 2018 8:14 am

[Worthy Bonds]

Post by arcane »

Hi,

I am looking for someplace to stash some cash, which is the supplement cash of 529 for my youngest kid (who is 13 now). I have enough money in the 529 for covering all 3 of my kids for up to out-state public school, but maybe not if 2 of 3 of them decide to go to private. My oldest is going to out-state public college this Sep. We plan to cover their full college.

So the cash could be needed in 5 years, or maybe not.

I found a new platform named https://www.worthybonds.com/, and promises 5% APY for bonds mature after only 36 months. The PRO and CON listed here -> https://moneydoneright.com/passive-inco ... ds-review/

It looks like a legit investment option, but for risk, I am not sure what does this mean:

Worthy bonds also aren’t FDIC-insured, though they are SEC-registered.

What exactly this "SEC-registered" provides? And what do you think 5% return vs 0.5%(FDIC) for my case?

Thanks
GreendaleCC
Posts: 1093
Joined: Sun Dec 22, 2019 2:24 am

Re: WorthBonds

Post by GreendaleCC »

arcane wrote: Sat Jul 31, 2021 11:51 am What exactly this "SEC-registered" provides?
Registration Under the Securities Act of 1933:
In general, all securities offered in the United States must be registered with the SEC or must qualify for an exemption from the registration requirements. The registration forms a company files with the SEC provide significant information, including:

A description of the company's properties and business;
A description of the security to be offered for sale;
Information about the management of the company; and
Financial statements certified by independent accountants.
It can still go to $0.
Last edited by GreendaleCC on Sat Jul 31, 2021 12:04 pm, edited 1 time in total.
dbr
Posts: 46181
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Re: WorthBonds

Post by dbr »

There is no guarantee you will get 5%. There is no guarantee that you won't lose part of your investment. You have zero information regarding the probability of either of those failures except that the risk is not negligible because there are no 5% 36 month investments today that do not have meaningful risk.

What is the consequence to you of that risk compared to holding the money in a safer place at much less return?
aristotelian
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Re: WorthBonds

Post by aristotelian »

Any bonds yielding that much must have risk comparable to the junk bond or "high yield" category. You might do a search for these terms to educate yourself on the pros and cons but in general most want safety from their bond allocation.
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retired@50
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Re: [Worthy Bonds]

Post by retired@50 »

I'm reminded of this quote:
Raymond F. DeVoe, Jr. wrote: "More money has been lost reaching for yield than at the point of a gun” is a popular financial quote that was said by Raymond F. DeVoe, Jr., of Legg Mason Wood Walker Inc., in February 1995. People search for higher yields (higher returns) and often lose money when a safer, lower return was available.
Source: https://www.barrypopik.com/index.php/ne ... t_of_a_gun

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
TetrisCollider
Posts: 191
Joined: Sun Nov 18, 2018 2:03 pm

Re: [Worthy Bonds]

Post by TetrisCollider »

I have a very tiny portion (<1%) of my portfolio in Worthybonds.

Here is a more detailed discussion on Bogleheads about this investment:

viewtopic.php?f=10&t=339224&p=5799442#p5799442
For some reason, people that know nothing, seem to know everything...
Topic Author
arcane
Posts: 37
Joined: Mon Oct 01, 2018 8:14 am

Re: [Worthy Bonds]

Post by arcane »

Thanks, that discussion is what I am looking for. Somehow when I searched the board, I could not find them related to "worthbonds" keyword.

It looks like lots of investors don't like it due to BlackBox nature. But for persons like me, looking for more returns than FDIC with higher risk tolerance, what are other options? Total US Bond Index?
Doctor Rhythm
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Joined: Mon Jan 22, 2018 2:55 am

Re: [Worthy Bonds]

Post by Doctor Rhythm »

The black box nature is only part of the skepticism. At 5% yield with 36-month maturity, these must be high risk loans (junk bonds). In addition to that, you’re buying a few individual bonds rather than a junk bond fund, so you don’t get the risk reduction benefit of diversification. And finally, the black box issue: when you buy a junk bond fund, at least you know what kind of extra risk you’re taking.
dbr
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Joined: Sun Mar 04, 2007 8:50 am

Re: [Worthy Bonds]

Post by dbr »

arcane wrote: Sat Jul 31, 2021 1:11 pm Thanks, that discussion is what I am looking for. Somehow when I searched the board, I could not find them related to "worthbonds" keyword.

It looks like lots of investors don't like it due to BlackBox nature. But for persons like me, looking for more returns than FDIC with higher risk tolerance, what are other options? Total US Bond Index?
There are not a lot of opportunities to gain expected return for risk in bonds right now. It might be a better option is a blend of stocks and bonds. This presumes you actually understand stock and bond risk and are not a victim of recency in stock performance.

My own recommendation is to recognize that more return for a higher risk tolerance is not on offer right now. The secular risk that fixed income investing will offer only low returns has materialized and there is nothing you can do about it.
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retired@50
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Location: Living in the U.S.A.

Re: [Worthy Bonds]

Post by retired@50 »

arcane wrote: Sat Jul 31, 2021 1:11 pm Thanks, that discussion is what I am looking for. Somehow when I searched the board, I could not find them related to "worthbonds" keyword.

It looks like lots of investors don't like it due to BlackBox nature. But for persons like me, looking for more returns than FDIC with higher risk tolerance, what are other options? Total US Bond Index?
If you're willing to occupy the lowest tier of credit quality, then using a corporate high yield fund like the one linked below (VWEHX) probably makes more sense than Worthy. The trouble right now is that the premium over safer bonds, like US Treasury bonds, is relatively small, so taking outsize credit risk doesn't pay off as much as it has historically.

See link: https://investor.vanguard.com/mutual-fu ... view/vwehx

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
quattro73
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Re: [Worthy Bonds]

Post by quattro73 »

Based on a very quick look at their site, they are basically a non-bank lender. They are taking your money and providing “asset based loans” to small business. Basically they are financing the working capital cycle for small businesses using accounts receivable and inventory as collateral. Could also be factoring, did not read enough to determine.

This is one of the riskiest segments of lending and has some of the most in depth underwriting and monitoring at a standard bank. If a company is going to a source like this instead of their local bank, it typically means they do not qualify, they are paying a very high rate, and they typically are undercapitalized. Often they will have ongoing profitability challenges, and sometimes are outgrowing their own ability to manage the next phase of their business. The bank said “no” most likely and they are now at the other side of this “Worthy” operation getting a loan.

I would not loan my money to them (Worthy or the underlying customer base).

Sincerely,

20 years of Commercial Lending experience
friar1610
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Re: [Worthy Bonds]

Post by friar1610 »

If nothing else, the Founder/CEO should have changed her surname to inspire a bit more confidence. :wink:

(Her name is Sally Outlaw!)
Friar1610 | 50-ish/50-ish - a satisficer, not a maximizer
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