Want to know the advantages and disadvantages of the Treasury direct bonds? You have opened the right page as this article will enlighten you on Treasury bonds.
Treasury direct bond is a kind of security sold by the Bureau of the Fiscal service under the United States Department of the treasury. Treasury bonds are government debt securities that are issued to raise funds. They are usually issued to individuals and corporations. In other words, these individuals and corporations are lending the Government their money for a stipulated period. Treasury direct bond pays a fixed interest rate to the individuals and corporations that purchased it every six months till its maturity date which is usually between 20 to 30 years.
Here are advantages and disadvantages of treasury direct bonds
Advantages Of The US Treasury Direct Bonds
It is a safe keep for your money- Since treasury bonds are debts, Treasury direct bond provides a safe way to save money. Debt holders are the highest in the ranking of investors. Furthermore, since the treasury direct bond is issued by the United States Government, it is risk-free. In the end, you would always get your principal investment. Returns are predictable- It is much easier to predict the returns you would be receiving on the Treasury direct bond. Predictability is what some investors look out for when trying to invest which is a good thing. For example, some retirees that have bought treasury bonds rely on the returns, and they need to be able to predict the returns. Higher interest rate than banks- The interest rate an individual or corporation receives on a treasury bond is greater than the interest rate on your savings. If an individual wants to save and does not need the money for the long term, treasury bonds are risk-free and provide better returns than saving in the bank. No bank can beat the Government in terms of their interest rates. Steady income- Since the Treasury direct bond has a fixed interest rate, the returns come in steadily. There can’t be a delay in payment or refusal of payment. Risk-free assets- Treasury direct bonds are known to be risk-free and are considered risk-free assets. Individuals and corporations who hold their bonds till the maturity date would not only receive their semi-annually returns but also their principal investment. Liquid assets- An individual or corporation can decide to sell their Treasury direct bond before its maturity date at a secondary bond market therefore they are considered liquid assets. There are a lot of buyers and sellers in the secondary bond market, so individuals and corporations can easily sell their existing treasury direct bonds. Best investment for retirement- If the purpose of purchasing a Treasury direct bond is to enjoy your retirement, then you are set to go. The steady income received serves as an income stream when you retire. They are safe so there is no need to fear for the future.
Disadvantages Of The US Treasury Direct Bond
Low yield- The Treasury direct bond may be a safe investment but the returns are not exciting. Greater risk leads to greater returns. Individual or corporation that wants higher returns on their investment should not consider investing in Treasury bonds. Loss when sold before the maturity date- In as much as the Treasury direct bond can be sold before its maturity date, the selling price might be short on value than the original price. Individuals and corporations can only receive their principal investment when they hold on to the treasury bonds till the maturity date. Inflation and interest rate risk- Inflation is the rise in the average level of prices of goods. The risk attached to inflation is that the value of your investment decreases because there is an increase in the interest rate. Inflation risk affects every other security investment but poses a greater threat to treasury bonds because of their low returns. For example, if your interest rate is 2. 5% and the inflation rate increases by just 1%, you are already losing on your investment. The value of purchasing that Treasury bond is on a decline. It doesn’t mean you won’t get your principal investment, but in terms of monetary value, you would lose.
Conclusion
In conclusion, the US Treasury direct bonds have the features of stability, Predictability, and Safe and conservative investment. One of the most reliable long terms investment security, and they provide a great platform to save.
In the long run, is the Treasury direct bond a good investment for a young individual?
Yes, as long as the Treasury bond can outpace the inflation rate.
Since Treasury direct bonds are risk-free, can I still lose money by investing in them?
Yes. When you sell your bond before the maturity date you tend to lose money.
