Are treasuries right for you?Īt the end of the day, you have to look at your financial situation, goals and risk tolerance to determine your best investment. To protect yourself, purchase individual corporate bonds for the shortest term possible or bond funds that have a short duration. For example, the Vanguard Total Corporate Bond Fund (VTC) is down more than 18% for 2022 as of this writing. If you invest in a mutual fund or ETF, you will lose money as other shareholders sell. If you invest in longer-term corporate bonds, you can lose money if you have to sell before the bond matures. But the same issues we saw above with TIPS also play out with corporate bonds. corporate bondsĬorporate bonds have various maturity dates like Treasuries and pay a competitive interest rate, depending on the bonds rating. If you want to invest in TIPS, purchase individual securities and the shortest term possible (five years) to limit your potential losses. This is evident in the iShares TIPS Bond ETF (TIPS), which is down 11% for the year as of this writing. ![]() Even if you don't sell, but other shareholders do, the fund's overall value will decline. If you were to invest in a TIPS mutual fund or exchange-traded fund, you also open yourself up to principal loss here. ![]() But if you invest strategically, using a bond ladder with various maturity dates, you should avoid running into this problem. Treasuries, on the other hand, will not lose value unless you sell them on the secondary market before they reach maturity. So while you still earn the stated interest rate, it could be offset with the loss of principal. If inflation drops, the bond will fall in value. The problem is there is risk involved with TIPS. The face value, however, will go up or down based on inflation.Įarning interest, in addition to having the value of the bond increase in value, sounds like an ideal investment. For example, if you purchase a 30-year TIPS bond with a 4% interest rate, you will earn 4% for the life of the bond. TIPS, or Treasury Inflation-Protected Securities, act like traditional bonds but with a feature that allows the face value to change based on inflation. If you think inflation will be below 4% within two years, then investing in five-year Treasuries and earning 4.15% is a great deal. Many economists believe that inflation will not be going any higher, so Treasuries could be a smart way to limit the loss of purchasing power.įinally, consider what would happen if inflation fell over the next 12-24 months. The alternative option, the stock market, doesn't offer a risk-free or guaranteed return either. In other words, you are still losing out to inflation by going this route. With the August consumer price index (CPI) report, the inflation rate is 8.3%-double the Treasuries' interest rate. ![]() Of course, you have to take into account inflation as well. However, you cannot sell these for at least one year, and if you sell within the first five years, you forfeit three months’ worth of interest.Ĭompare the rate of the 52-week Treasury to high-yield savings accounts, and you are earning double that amount or more with the Treasury. You could invest in I Bonds, which are yielding over 9% at the time of this writing. This is a risk-free rate of return that is hard to find in other investments. As of this writing, here are the current interest rates (APY) for various term Treasuries:
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