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MillionaireGuide

Investing & Markets

Bonds & Treasuries

Lend money at a known rate for a known period

Updated 2026-08-04

At a glance

Capital needed
Medium capital$500 – $10k
Time to first income
MonthsPart-time friendly
Income ceiling
Side incomeUp to ~$2k/mo
Risk
Very low1 out of 5
Effort model
Passive
Route to wealth
Compounding
Scalability
5 out of 5
Competition
1 out of 5
Typical earnings
Yields vary with rates, historically 2–5% on government debt
Startup cost
Government bonds are often buyable from around $100

How it works

You lend money to a government or company and receive interest payments until the debt matures, when the principal comes back. The return is contractual rather than dependent on performance, which is exactly why bonds are the ballast in a portfolio rather than the engine.

How to start

  1. 01

    Be clear about the job you want them to do

    Bonds are for capital preservation and for money you will need within a few years. Expecting them to build wealth is expecting the wrong thing.

  2. 02

    Match maturity to when you need the money

    If you need the money in three years, buy something maturing in three years. Long-dated bonds sold early can lose substantial value when rates rise.

  3. 03

    Understand duration before buying a bond fund

    A fund with ten-year duration loses roughly 10% of its value if rates rise one percentage point. Many investors discovered this the hard way.

  4. 04

    Separate government from corporate risk

    Government debt in a stable currency carries almost no default risk. Corporate debt pays more precisely because it can default, and does so in recessions.

  5. 05

    Compare against inflation, not against zero

    A 4% yield with 5% inflation is a real loss. Inflation-linked government bonds exist specifically to solve this.

Honest trade-offs

What works

  • Predictable, contractual income with a known maturity date
  • Government bonds in a stable currency are among the safest assets available
  • Reduce portfolio volatility, which makes holding equities through declines easier
  • Highly liquid and simple to buy through any broker

What does not

  • Low returns; nobody has become wealthy from a bond allocation
  • Inflation erodes fixed payments, sometimes to a real loss
  • Interest rate rises reduce the market value of existing bonds
  • Interest is usually taxed at ordinary income rates

Risks and failure modes

  • Duration risk — long-dated bonds can fall sharply in value when rates rise
  • Inflation risk on fixed nominal payments over long periods
  • Credit risk on corporate issuers, concentrated exactly when markets are already falling

Common questions

For a long-horizon portfolio, a large bond allocation mostly reduces expected returns. Where they earn their place is money needed within about five years, and as a buffer that makes it psychologically possible to hold equities through a crash rather than selling.

Because "safe" means the issuer will repay at maturity, not that the price will not move. When rates rise, existing bonds paying lower rates become less valuable. Held to maturity you still get your principal; sold early you may not.

Sometimes. Short-term government debt often yields more than instant-access savings and carries comparable safety. For an emergency fund, immediate access usually matters more than the extra yield.

Related techniques

Index Fund Investing

Investing

Capital
Under $500
First income
Years
Risk
Ceiling
Six figures

Dividend Investing

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Capital
$10k+
First income
Months
Risk
Ceiling
Six figures

Peer-to-Peer Lending

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Capital
$500 – $10k
First income
Months
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Salary replacement

REIT Investing

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Capital
Under $500
First income
Months
Risk
Ceiling
Salary replacement