Entrepreneur, investor, and TV personality Kevin O'Leary argues that anyone serious about building wealth should park their first $5 million in safe, liquid assets such as Treasury bills or government bonds.

This nest egg will generate consistent passive income, providing financial security that’s independent of macroeconomic conditions.

Despite being a hardcore dividend investor, I actually think this is a fine idea.

In fact, I reached a similar conclusion not too long ago while house hunting here in Brazil. For all the U.S. dollar’s shortcomings, it still outperforms most other currencies.

It wouldn’t take an astronomical amount of money to build a rainy-day bond or T-bill fund that generates enough monthly passive income to live on a beach in Vietnam, Mexico, or Brazil.

Likewise, if you hit it out of the park in business, you could generate six figures per year in passive income from owning T-bills and government bonds — two of the closest things to a “safe” investment. The world’s greatest investor, Warren Buffett, owns over $360 billion worth of Treasuries.

To put that in perspective, Buffett’s Berkshire Hathaway owns about 6% of the entire U.S. Treasury bill market.

You can buy Treasury bills directly from the United States government via TreasuryDirect.gov But there are also numerous ETFs and index funds that can be easily purchased through most major brokerage platforms.

Today’s special report examines the Vanguard Long-Term Bond Index Fund ETF (BLV).

BLV buys investment-grade securities, including government bonds, as well as corporate and international dollar-denominated securities with maturities greater than 10 years that are rated BBB- or above by S&P Global Ratings.

The fund’s top 10 holdings are all long-term U.S. government bonds that mature in the 2050s and yield between 4% and 4.75%.

BLV holds over 3,000 securities in total. About 53.41% are U.S. government T-bills and bonds, 20.13% are BBB-rated securities, 19.79% are A-rated, and AA- and NR-rated bonds make up the remaining 7% of holdings.

Being an investment nerd, and wanting to give you the most reliable information possible, I’m flipping through page after page of fund holdings, and most of the corporate bonds are from well-known companies like Visa, Amazon, Wells Fargo, and Union Pacific. There are also small percentage holdings from U.S.-friendly countries, such as a “Panama Government International Bond” that makes up 0.02% of the fund.

In terms of investments, bond funds like BLV are fairly stable sources of income. Most of the fund’s income comes from U.S. securities, and if the gold bugs are ever proven correct and the United States defaults on its debt, a shock to this fund would mean the entire stock market is in absolute chaos.

Right now, BLV offers a 4.73% starting yield with a 0.03% annual expense ratio.

Historically speaking, bonds underperform equities. Compared to the S&P 500, BLV has delivered abysmal results, with a 10-year total return of just 12.31%.

That said, the United States had extremely low interest rates for much of the 2010s and even the early 2020s. Rates were near 0% from March 2020 to March 2022, which temporarily inflated BLV’s valuation. When a new bond pays 1% annual interest, for example, an older bond paying 3% suddenly becomes more valuable.

BLV saw a significant spike from about $85 per share in late 2018 to over $115 per share in early 2020. Then the fund came crashing down once interest rates increased.

Since late 2022, BLV has essentially traded flat.

If interest rates were 1% or 2%, I wouldn’t even bother covering this fund or discussing bonds in general. However, the U.S. 10-year Treasury note currently offers a 4.31% yield, and BLV offers 4.73%.

At these rates, an investor is getting a fairly high annual return — about four times higher than the S&P 500’s current starting dividend yield.

Even blue-chip dividend stalwarts like The Coca-Cola Company (often touted for its “bond-like yield”) has a starting yield lower than BLV, about 2% lower in Coca-Cola’s case.

Would I buy bonds or a bond fund?

Probably not. But, that’s because I prefer buying dividend stocks.

Quality dividend payers offer both income growth and capital appreciation potential, two things most bonds lack. That said, this could be a solid high-yield investment for anyone who wants passive income with liquidity.

Bonds and T-bills that provide a 4%+ annualized yield while remaining easily convertible into cash are a better way to “get paid to wait” than sticking excess money into a savings account that pays 1% or 2% annual interest. Likewise, if you’re an expat who “earns in dollars and spends in pesos,” government-backed securities are a low-risk hedge against local currency fluctuations.

Or, if you’re a high-income earner, bonds and T-bills might be a low-stress option that doesn’t distract from your primary source of income. There’s a story in one of the Market Wizards books about a trader who made tens of millions of dollars in the options market each year, yet his personal portfolio consisted of a “distraction-free” high-yield money market account.

BLV isn’t my cup of tea, but it can certainly benefit many investors.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.