If you are browsing through DINKs Finance, odds are you care about your financial health. I would also be willing to wager that you know a thing or two about asset allocation with your stock market investments. Here’s what you should know about treasury bonds.
Bond Allocation
The goal of this article will be to dive deeper into one portion of asset allocation, specifically bond allocation. Your bond allocation is where you park a portion of your money in less risky investments for a smaller return. Because you invest that chunk of money in lower risk vehicles, that money is safer. As you age, it is recommended that you gradually move more funds over to lower risk bond investments instead of higher risk equity investments. This is because you are getting closer to the age at which you would need to withdraw from your portfolio.
Most people who have some sort of bond investment tend to go with a bond fund or bond index. These are made up of multiple bonds of all varieties. The aggregate performance of those bonds is your annual return. I am here to offer a different path for your low-risk investments, enter Treasury Direct.
Treasury Securities
Treasury Direct is the U.S. Government website that allows you to buy bonds, bills, tips, and notes (all of these are also known as treasury securities) directly from the U.S. Government. The beauty of these purchases is that the U.S. Government directly backs all of your investments. This translates into you not having to do your research on a business that you’ve never heard of since you’re investing in the government. This also means that you are almost guaranteed to get your money back as the U.S. has one of the most stable Governments on the planet.
Other benefits of treasury securities include:
- Most treasury securities beat the rate of inflation, which means that your money won’t lose value over time.
- Almost all treasury securities have a higher interest rate than savings accounts, so you’re getting more bang for your buck.
- Some states don’t tax treasury securities (check out this article for more info).
- No fees/low minimums in comparison to bond funds and bond indexes. You can invest more money instead of spending it on managers.
- Can set up automatic reinvesting so that you can quite literally “set it and forget it” in regards to this asset allocation of your portfolio.
Final Thoughts
Even if you have an all equities portfolio but are looking for a place to stash some cash for a big purchase coming up (new house, business venture, etc.), Treasury securities are a great place to park that capital by giving you a higher rate of return than your bank account would and also being a safe investment. They are reliable, stable, and basically guarantee you a return.
Whether you are just looking for an alternative to your bank savings account or are looking to diversify your portfolio and move your bond investments over to something with low risk but a higher reward, treasury securities may be the right fit for you!
Bonus: You can also buy treasury securities as gifts for loved ones! With this, you can potentially be giving your loved one way more than what you could originally afford. This is especially beneficial over a longer period of time, so the interest has a longer compounding period.
For more great reads, check out the articles below:
- Rock Solid Personal Finance Tips from Eric Tyson
- The Biggest Signs That You Need To Save More Money
- The 5 Most Profitable Real Estate Strategies
Gina DiMasi
Gina DiMasi is an organizational finance whiz. Gina is an avid investor, educator and aficionado of bitcoin and other modern investments. In addition to being an all around nice person, Gina has a degree in personal finance studies from Framingham State University. When she's not running numbers or blogging up a storm, Gina actively volunteers with Habitat for Humanity.
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