Should I invest in Treasury bonds?

The main attraction for people who invest in the government bond market is the fact that they offer a safe, secure investment. “U.S. Treasuries are the most liquid and safest securities in the world,” says Jay Sommariva, vice president & director of fixed income at Fort Pitt Capital Group in Pittsburgh. “They are backed by the full faith and credit of the U.S. government.”

Treasury bonds are considered practically risk-free investments because they are backed by the U.S. federal government, which is able to use its taxing authority to raise money.

Many investors use T-bonds to keep some of their retirement savings free from risk, to provide a steady income after retirement, or to set aside savings for college education or other major expenses. For investors who want to keep their money in a safe, cash-like investment, T-bonds offer a smart option. Others who invest in the stock market but want to add less risky investments to their portfolio may choose T-bonds for balance. (Acorns offers a conservative portfolio composed of a variety of federal government bond funds.)

What are the different types of Treasury bonds?

T-bonds

T-bonds are one of three types of government debt securities. They are the long-term investments, with maturity dates of 10 years to 30 years.

Treasury Bills

The U.S. government also sells Treasury bills, which are auctioned at a discount of their face value and mature in four, eight, 13, 26 or 52 weeks. 

Treasury Notes

Treasury notes, which fall in the middle between T-bonds and T-bills, have two-year, three-year, five-year, seven-year and 10-year maturities. They pay interest every six months until maturity, just like T-bonds. But the price you pay to purchase them may be greater, less or equal to the face value—that price is determined at auction, when the notes are sold. 

Should I invest in individual Treasury bonds or bond funds?

If you have very specific needs that you want to meet with Treasury bonds, individual bonds may be the best bet, Sommariva says. By purchasing individual T-bonds, you can tailor your portfolio to meet your needs, such as investing to the specific time frame when you’ll need the bond proceeds to pay for taxes or a wedding.

However, if your needs are not as specific and you just want to build diversity into your portfolio, a bond fund may be a good idea. “Bond funds are generally more diversified, but don’t have a specific end date,” Sommariva says. 

That’s because bond funds are basically mutual funds that are invested in bonds. They are like baskets holding many different individual securities, in this case, all bonds. Bond fund managers regularly research the fixed income markets, buying and selling bonds based on changes in the economy and the market, and to meet investor withdrawals. Because fund managers are regularly buying and selling bonds based on market changes, there is a possibility that your investment value could change when you decide to cash out. 

But bond funds can be safe places to invest your money. For instance, Acorns’ conservative portfolio is made up of T-bond funds.

How can I invest in Treasury bonds?

Investing in individual Treasury bonds

You can purchase T-bonds directly from the government by opening an account at TreasuryDirect, where the bonds are sold at monthly online auctions. A bond’s price and yield are determined during the auction. 

You can also purchase T-bonds in the secondary market from banks or brokers who purchased them directly from the government. The original buyer must hold their T-bonds for at least 45 days before those bonds can be sold on the secondary market.

Investing in Treasury bond funds

If you want to invest in bond funds, you can buy shares through an investment broker. 

It’s important to keep in mind that investing in T-bonds is more about protecting your cash than growing it, especially in certain market conditions. “Given the low risk and ultra-low yields in this environment, investors must consider the low rate of return they will receive,” Sommariva says.

How much should I invest in Treasury bonds? 

If you decide to invest in Treasury bonds, the amount you invest should really depend on your goals. For instance, if you are saving for a specific need such as a wedding, you’ll need to calculate how much you should invest now to net the amount you’ll need for the wedding.

If you’re just looking for a risk-free place to park your money to keep a portion of your retirement savings in a cash-like investment vehicle, determine the amount you want to keep safe. And if you are using Treasury bonds issued by the federal government as a way to diversify your portfolio, the amount depends on your ultimate goals and comfort level. “Every investor has different needs,” Sommariva says. 

Investing involves risk, including loss of principal. Past performance does not guarantee or indicate future results. This information is being provided for informational purposes only, and is not intended to provide, and should not be relied on, for accounting, legal or tax advice. You should consult your tax or legal adviser regarding such matters.