INTRO
Debt investing, or the practice of lending money to businesses and other borrowers in exchange for interest payments, has been around since the middle ages and continues to be an important and lucrative part of the global economy today. However, many people who are looking to start debt investing are confused by their options and the best ways to get started; below we’ll go over the top five reasons why you should start debt investing right now.
1) Better Returns
Returns on debt investing have been outperforming traditional equity markets for the past decade, and there are several reasons why this trend is likely to continue. First, interest rates are at historic lows, which means that returns on debt investments will continue to be higher than returns on other investments. Second, it is a more conservative investment strategy, which means that it is less risky and more stable than equity investing. Third, it provides a higher level of income than equity investing, which is especially important in today’s low-interest rate environment. Fourth, it gives investors the ability to diversify their portfolios and reduce their overall risk. Fifth, it is a more tax-efficient investment strategy than equity investing.
2) Build Portfolio Balance
A well-rounded investment portfolio is important for long-term success. By including debt investments, you can help build balance and stability in your portfolio. Additionally, debt investing can provide good returns even in low-yield environments. And finally, debt investing can be a great way to succession plan for the future of your family or business.
3) Flexibility
When it comes to succession planning, debt investing offers a lot of flexibility. You can choose how much debt you want to invest in, when you want to invest in it, and for how long. This type of investing also allows you to spread your risk across different types of debt and different companies. Plus, if one company defaults on its debt, your investment is spread out among other companies, so your risk is diversified.
4) Tax Efficiency
When it comes to succession planning, debt investing can be a great way to pass on your wealth to the next generation. That’s because debt investing is a very tax-efficient way to invest. The interest you earn on your debt investments is taxed at a lower rate than most other types of income, and the capital gains you may realize when you sell your debt investments are also taxed at a lower rate.
5) Control Your Investment Decisions
When you’re in debt, you’re essentially giving up control of your investment decisions to someone else. You’re also losing the potential for upside if the debtor does well. However, by investing in debt, you can regain control and protect yourself from downside risk. Moreover, it can provide a steadier stream of income than equity investing, which makes it ideal for succession planning. In addition, with today’s interest rates at all-time lows, now is a great time to start adding more fixed-income investments to your portfolio. Lastly, leverage is one of the best ways for investors with limited assets under management (AUM) or limited experience to get into high-return markets such as corporate bonds and leveraged loans. If you want steady cash flow or potentially higher returns without taking on too much risk, debt investing may be just what you need!
