Monday, January 10, 2011

Treasury Direct

Bonds are not all that sexy these days - and savings bonds in particular are not returning spectacular yields.  But if you want to invest in EE Bonds, I Bonds, or other Treasury vehicles, you can do so, directly, online at

Bonds these days are not very sexy - the rates of return are often fractional right now.  Of course, given the current rate of inflation, this is still a positive rate of return, for the time being.  But regardless of interest rates and inflation, at least a portion of your portfolio should be in "safe" investments like bonds, and nothing is safer than Treasury products - Municipal bonds do occasionally default.  And bond funds, due to their traded nature, can actually decrease in face value, whereas the underlying bonds do not.

Like life insurance, bonds are not a good investment for all of your money - but for a portion.  Diversification is the key to safe investing - if something goes South, if you have your money spread around, at least you won't lose it ALL.  And as you get older, it is a good idea to put more money into safer investments and less into stocks and other speculative investments.

There are a number of Treasury Products you can invest in, everything from traditional series EE bonds, to short-term Treasury Bonds and long-term Treasury Notes, the latter of which are paying over 4% rate of return over ten years.

Whether or not you should invest in any of these products is a personal decision.  The rate of return is never going to be great.  Even higher rate notes, such as Treasury Notes, earnings can be negated by inflation.  On the other hand, most of these products, while taxed at the Federal level, may be exempt from State and local income taxes.  As such, the effective rate of return may be higher, depending on what State you are in.

However, as a means of rounding out a portfolio, some of these products are not a bad idea.

In addition, you can use the purchase of bonds as a forced savings plan - either by setting aside a certain amount per month by auto-deposit (e.g., $50, $100) or through the Payroll Savings Plan.  Either way is not a bad idea to get started in investing.

The Treasury Direct site can be a little intimidating at first - it was created, after all,  by the government.  And their level of security, which uses a virtual keyboard AND a code book (card) technique, is probably a bit of overkill.  But overall, it is a very informative and useful site.

In my personal portfolio, I have a few thousand dollars in EE Bonds and may invest in some longer-term notes shortly.  Again, this is an adjunct to your portfolio, not necessarily the main part of it.

Diversification is the key to investing for the small investor.  We cannot pick the correct stocks, funds, or trends, all of the time.  Rather than try to "outsmart" the market - and thus try to outsmart a lot of people who are way smarter than you are - a better approach is to squirrel away in a number of different places - Mutual funds, stocks, real estate, life insurance, bonds, etc.

Warren Buffet once said "Put all your eggs in one basket, and then watch that basket very closely!"  That may be good advice for Warren Buffet (who also famously said "The first Billion is the hardest!") but for schmucks like you and me, it is disastrous.  Ask the people at Enron who put their entire 401(k) in Enron stock.  They thought they were watching that basket, too.

No, I think a better approach for the middle-class is to diversify.  And Treasury Direct offers you a chance to diversify your investments, with little or no overhead - compared to a bond fund.