In order to build wealth, you want your money making more money. If you keep your savings in a traditional bank, your money has less buying power over time due to low-interest rates and inflation. High-interest online savings accounts and Certificates of Deposit (CD’s) help, but the interest rate they pay hovers near the inflation rate. That’s why it’s important for you to invest and not just save.
Worthy Bonds are an alternative investment that earns a fixed 5% interest on every $10 Worthy Bond purchase. Anyone in the United States can diversify their portfolio with Worthy Bonds by investing as little as $10. Worthy Peer Capital uses money from bond sales to fund fully secured, asset-backed small business loans. Businesses then repay loans to Worthy with interest. Investing in Worthy Bonds supports small businesses without investing in the stock market.
To help you decide if investing in Worthy Bonds is right for you, we review below the story behind Worthy Bonds, how they work, and the pros and cons of investing in Worthy Bonds.
About Worthy Peer Capital
The mission of Worthy Peer Capital is to change the face of finance by helping investors (even those just starting out) meet their financial goals while supporting small businesses and their need for capital.
They consider investing in Worthy Bonds a win-win for anyone who wants to grow their wealth “by supporting Main Street instead of Wall Street.”
The CEO and Co-founder of Worthy Peer Capital is Sally Outlaw. She is a crowd finance strategist with decades of experience in media, real estate, and business development. Sally holds a Series 65 license as a Registered Investment Advisor and prior to Worthy, she was the CEO of Peerbackers.
How Do Worthy Bonds Work?
In this crowdfunded investing platform, you don’t have to decide which specific loans to invest in. Instead, when you invest $10 in a Worthy Bond, you invest in a small part of every small business loan in the Worthy portfolio.
Worthy charges small businesses an interest rate higher than 5% so that it can offer investors a 5% annual yield that is credited daily. Investing in small parts of many loans reduces your risk from a small business defaulting on a loan you may have chosen to invest in.
An investment in Worthy Bonds is considered a higher risk than keeping your money in an FDIC-insured high-interest online savings account or in a CD. But the trade-off for taking on more risk is the higher return Worthy Bonds offer.
To help mitigate risk, Worthy Bond small business loans are backed with secure assets. A small business borrowing from Worthy has an inventory worth more than the loan that can be sold off to help recover the amount of the loan.
How Do I Invest In Worthy Bonds?
Upon signing-up and then logging into Worthy, you’ll select an account type. The majority of Worthy users choose an individual account. But you also have the option of using an existing Trust Fund or IRA account. If you have a non-profit or business, you can also use those to invest in Worthy Bonds.
To fund your account, you link your bank account to your Worthy investment account. You buy bonds in $10 increments and you have a choice of doing one-time purchases or making recurring contributions each month.
Worthy also gives you the “spare change” option that rounds up your credit and debit card purchases. When those round-up savings reach $10, a Worthy Bond is purchased automatically.
You can also activate automatic reinvesting in your account settings to maximize your earnings. When you reach $10 in earned interest, a new Worthy Bond is purchased in your account.
If you are a non-accredited investor, you can invest up to 10% of your net worth or annual income. Accredited investors can purchase up to $100,000 in Worthy Bonds and possibly more. If you have questions about what type of investment you qualify for, read more here.
Worthy Bonds have a 36-month repayment term but you can withdraw your money penalty-free at any point during the term. If you are withdrawing small amounts, your funds are deposited instantly. If you have large sums (over $50,000), it may take a few weeks for funds to be deposited into your bank account.
You can also keep track of your Worthy Bonds and their activity, ask questions, find answers, or share feedback on your cell phone using the Worthy app.
Pros and Cons Of Investing In Worthy Bonds
Advantages Of Worthy Bonds
Obviously the biggest benefit of investing in Worthy Bonds is earning 5% interest on the money you invest. You may earn more money in the stock market, through real estate investing, or with other alternative investments – but those investments may come with more risk too.
While your funds aren’t FDIC-insured, Worthy Bonds are registered with the U.S. Securities and Exchange Commission (SEC). You don’t have to be an accredited investor. Any 18-year-old in the US can invest in them for just $10.
Worthy only invests in asset-backed loans that can’t exceed ⅔ of business’ net worth. This way, the borrower’s collateral can be used to recover loan balances in case of default. To diversify their portfolio and minimize risk, Worthy invests in a number of small business loans.
You don’t pay any fees to buy Worthy Bonds or to withdraw your money. The simple interest you earn is converted to compound interest if you reinvest your interest into new bonds. There are also interesting options like the “round-up” feature to help you invest more money without even noticing it.
Finally, Worthy’s mission is to support small businesses while helping you earn a 5% fixed return on your investment. It is a community-focused approach that helps entrepreneurs succeed in growing their businesses.
Drawbacks to Worthy Bonds
One of the biggest concerns about putting money into Worthy Bonds is that the model hasn’t been tested in a struggling economy. When there is a recession, will small businesses with loans survive and will the asset-backed model still support 5% fixed interest returns on Worthy Bonds?
Worthy does have cash reserves in case they can’t recover loan balances, but this is still a concern to some investors.
Since Worthy Bonds aren’t FDIC-insured, investing your emergency fund or any money you can’t afford to lose could be a risky move.
Also, interest earned on Worthy Bonds is taxed as interest income, not as capital gains. Capital gains tax rates apply only to assets that appreciate in value when sold, like stock shares or cryptocurrency
The Worthy Causes Program
You can also become a donor to the Worthy Causes program. One way to donate is to simply purchase Worthy Bonds and donate them to a non-profit of your choice that is part of the Worthy Causes program.
You can also link a debit or credit card within the Worthy app and have your transactions rounded up to the next dollar. When your “spare change” from round-ups equals $10, a 5% interest bearing Worthy Bond is purchased and can be donated to your favorite cause in the Worthy program.
According to Worthy Peer Capital, the round-up program averages about $30/month per donor. Bonds donated to non-profit organizations earn 5% interest per year, credited weekly and bond purchases still help support small businesses.
Are Worthy Bonds a Good Investment?
If you are looking for a way to generate passive income and diversify your investment portfolio, consider investing in Worthy Bonds.
With a fixed 5% interest rate, you’ll earn more money on your Worthy Bonds than you will by keeping your money in the bank. You won’t have the volatility of the stock market to worry about either.
Even though the loans have 36-month terms, you are free to withdraw your money at any time without a penalty. Keep in mind that Worthy is SEC-registered but it isn’t a bank. Your funds are not FDIC-insured, so there is some risk involved. You shouldn’t put all of your money into any alternative investment and that includes Worthy Bonds.
Worthy Bonds may not be as risky as many alternative investments because they invest in fully secured small business loans that are asset and inventory-backed. But loan defaults can happen and you could lose your investment if too many borrowers stop paying on their loans.
Only you can decide what alternative investments are right for you based on your personal situation and risk tolerance. If you’re a bit nervous about investing in Worthy Bonds, the good thing is you can start small and you won’t pay any fees. You can also take your money out at any time without paying penalties.
As always, if you have questions or concerns – we suggest you talk to a financial professional when it comes to your investment portfolio.