Treasuries like U.ST bills as well as bonds are considered as the best kind of investment that will be very beneficial for you specially if you are about to approach the age of retirement. Treasury bonds are long time bonds which are issued by the treasury of the United states of America. The government of the united states support the treasury bonds and this is one of the main reasons that treasury bonds are an investment which is completely free of risk.
In the following article, we will be mentioning about the treasury bonds and which ones are the best.
Are treasury bonds a safe and good investment for retirement?
People who prefer saving money for their retirement make use of many investments so that they can gather different funds. These funds include treasury bonds, stock as well as cash accounts. Treasury bonds are very common as they are completely free of any kind of risk as well as they generate good income.
The investment that you will do in a treasury bond pay a good as well as steady rate of interest which is supported and backed by the government of united states of America.
How suitable are treasury bonds for young investors?
Most of the treasury bonds come with the five years of rate and have a long duration of term. This is why they come with a very low return thus not extremely beneficial for the young investors. For those people who are yet to retire in 20 to 30 years of time would want a rate more than 2 to 3 percent of the return on the treasury bond so that they can cope up with the inflation rate every year.
Risk of inflation
When the rate of inflation will keep on rising every year, the value of treasuries will definitely fall. This is because the investment cannot keep up with the increasing rate of inflation. It can also be said that the value of your own money which you have invested in the treasury bond declines due to the increase in inflation.
If you wish to get rid of this problem, you should invest your money in the treasury department investment vehicle which is also known as the treasury inflation protection security.
The risk of the interest rate
Apart from the risk of inflation in investing the treasury bonds, there comes the risk of the interest rate. If you will wait till your treasury reaches its maturity there will be no problem and you will get back your entire amount when maturity is reached. However, if you sell out your treasury before it reaches the age of maturity, you will not receive the full principle which you have paid in the beginning.
This is because treasury bonds are related to the rate of interest. Quite simply if you have taken a treasury bond at 4 percent 2 years back, now that the interest rates have risen to 5 percent so you will not obviously get the full principle back again. It all depends upon the rate of interest. If the interest rate rises to a great level, it can lead up to a great loss for you.
The opportunity cost
Treasury bonds are quite a safe cost and so they would not attract many investors. However, there is a great chance of opportunity cost. This is because treasury bonds have high rates of interest charged on them as mentioned above as compared to the savings account.
If you compare investing in treasuries to investing in other safe bonds, it is true that you will make more money with other safe investments. Having said that, this is one of the biggest risks in the treasury bonds.
Some final thoughts
At the end of this article, you might have now gained the complete idea behind all kinds of treasury bonds. It is up to you to decide whether you wish to invest in the treasury bonds or other safer kinds of bonds.
Although treasury bonds are backed by the government of united states of America, there is still a lot to ponder upon it before you actually think of investing in these treasury bonds.