There are four main reasons why notes are profitable: the ability to access your money quickly after you sell, inflation protection, tax benefits and access to more money later on. The ability to access your money quickly is probably the most important reason for investing in notes. If you need to use your money right away, you may not want to invest in bonds or CDs as you have to stay invested for a certain period of time before you can access your money.
You can earn some additional cash by selling notes.
If you’re wondering if it’s worth it to sell notes, the answer is yes, as long as you sell them for a fair price. The key is to set your price conservatively. You don’t want to overvalue your notes so that you have to sell them at a loss.
Consider selling if you have a high-yield savings account or high-interest debt
Are savings accounts and other low-interest debt high-yield investments? They are if you earn more than the interest rate on the bank account or loan. Savings accounts have interest rates usually between 0.1% and 1.5%. The national average savings account interest rate is 0.1% right now. Some online banks, like Ally Bank, even offer free checking. However, the interest you earn on savings accounts is usually lower than what you can earn by investing in other assets.
A short-term note can give you some liquidity, but the return is usually less than what you could get by selling a bond.
In many cases, the answer is yes. Depending on the interest rates at the time you sell a note, you might make a profit. However, the reality is that the interest rates on notes are usually lower than the interest rates on bonds. In addition, the money you receive is typically in the form of a check, which means you'll need to have money on hand before you can cash it out.
You can use short-term notes to diversify your portfolio.
Another benefit of short-term notes is how they can help you make money in the short-term. If you need a quick influx of capital, selling short-term notes can be a great option. However, the profitability of short-term notes depends on how the interest rates are when you sell them. If interest rates have increased since you purchased the notes, you will have to pay a higher annual interest rate to sell your notes. The profitability also depends on the length of the loan you take out. The longer you have the loan on your notes, the more interest you will have to pay.
Bonds typically have a lower profit potential but have a longer duration.
Individual notes can be profitable. However, the profit potential is lower than bonds. You won't make money on interest payments. Rather, you can make money by selling the note when it matures. However, the potential profit is lower because you'll receive less money if the note's value is lower at that time.
If you have an emergency fund, you might consider selling some of it to buy short-term notes.
Short-term notes have a lower interest rate than a traditional mortgage. But, they come with a cost, including a potential loss if interest rates increase. If you’ve never had a loan before, your money might be best held in a savings account or certificate of deposit. But, if you’ve got an emergency fund or plan to finance a major purchase, selling some of your cash to finance it might be a good idea.
If you have a high-yield savings account, holding short-term notes on your savings account is a good way to earn some extra money.
Over the years, interest rates have remained low. This means that the returns earned on most savings accounts are minimal. If you manage to hold onto your money for a few years, you can earn a small profit on your savings account earnings after paying the fees. However, the amount of money you earn in the long run is not very high.
Conclusion
When you sell notes, you’ll either want to sell them at a discount (a “discounted sale”) or at face value (a “cash sale”). If you want to make money, you’ll need to figure out which strategy is best for you.