1. 25 Investments: Introduction
  2. 25 Investments: American Depository Receipt (ADR)
  3. 25 Investments: Annuity
  4. 25 Investments: Art and Collectibles
  5. 25 Investments: Bonds
  6. 25 Investments: Cash
  7. 25 Investments: Closed-End Investment Fund
  8. 25 Investments: Common Stock
  9. 25 Investments: Convertible Bonds
  10. 25 Investments: Corporate Bond
  11. 25 Investments: Futures Contract
  12. 25 Investments: Life Insurance
  13. 25 Investments: The Money Market
  14. 25 Investments: Mortgage-Backed Securities
  15. 25 Investments: Municipal Bonds
  16. 25 Investments: Mutual Funds
  17. 25 Investments: Options (Stocks)
  18. 25 Investments: Exchange-Traded Funds
  19. 25 Investments: Preferred Stock
  20. 25 Investments: Private Equity
  21. 25 Investments: Real Estate & Property
  22. 25 Investments: Real Estate Investment Trusts (REITs)
  23. 25 Investments: U.S. Treasury Securities
  24. 25 Investments: Unit Investment Trusts (UITs)
  25. 25 Investments: Venture Capital
  26. 25 Investments: Zero-Coupon Securities
  27. 25 Investments: Conclusion

Also known as "government securities", treasuries are a debt obligation of a national government. Because they are backed by the credit and taxing power of a country, they are regarded as having little or no risk of default.  They are the definition of risk-free securities.  Below is an overview Treasury securities, which differ by their maturity dates:

 

Treasury Bills - A U.S. government debt security with a maturity of less than one year. T-bills do not pay a fixed interest rate. They are issued through a competitive bidding process at a discount from par.

Treasury Notes - A marketable, fixed-interest rate U.S. government debt security with a maturity between one and 10 years.

Treasury Bonds - A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds are usually issued with a minimum denomination of $1,000.

 

The U.S. Treasury also issues Inflation-indexed Treasury Securities, or Treasury Inflation Protected Securities (TIPS).  According to the Treasury, TIPS “provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.

TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.”

 

Objectives and Risks

 

Treasuries are mainly used as safe havens for investors, especially when the markets head south. The fact that these debt instruments offer very little risk of default means the interest rate investors receive is relatively low. The price of treasuries rises as interest rates fall, and the opposite is true when interest rates rise. Therefore, the best time to buy treasuries is when interest rates are relatively high.

 

How To Buy or Sell It

 

Treasuries can be bought through various discount and full service brokers. Bond brokers also allow you to buy and sell treasuries. Perhaps the best way for individuals to buy or sell treasuries is through the U.S. Treasury's "Treasury Direct" program, which provides transactions for little or no fees.

 

Strengths

 

Risk-free investments

Downside protection

TIPS offer inflation protection

 

Weaknesses

 

Certainty, but not much return or upside

Government debt is high

Existing holdings could decline if interest rates increase

 

Key Considerations

 

Liquidity:  High

Historical Returns:  Medium

Inflation Protection:  Low (except for TIPS)


25 Investments: Unit Investment Trusts (UITs)
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