Don’t be surprised, but Uncle Sam has a deal waiting for you–in the safe, long-term investments called Treasuries.
In a nutshell, Treasuries are everything technology stocks are not: predictable, low-yielding and secure. They are also competitively priced investments free of state and local taxes.
“Treasuries don’t keep people awake at night,” said Lynn Ballou, a certified financial planner with Ballou Plum Financial Advisors in Lafayette, Calif. “They’ve been around for a number of years now, and you can count on getting your money back. Most people feel extremely comfortable with them.”
In fact, Federal Reserve Chairman Alan Greenspan, no slouch when it comes to investments and the economy in general, revealed this week that he puts his own money in Treasury bills.
You’ve heard it over and over again: There are no safer securities than U.S. Treasuries, or obligations backed by the U.S. government. And it’s true. Treasuries are backed by the “full faith and credit of the U.S. government.”
There are three basic varieties of Treasuries. Which Treasury you purchase depends on whether you want a long-term or a short-term rate of return. Starting with last week’s auction, all Treasuries will be offered in $1,000 increments.
For the quickest rate of return, turn to Treasury bills, or short-term securities sold in 13-, 26- and 52-week maturities. A 13-week Treasury was yielding 5.06 percent on Aug. 18.
T-bills are sold to investors at a price a bit less than their face value to reflect the rate of return, and upon maturity they pay the investor full face value. The discount reflects the interest the investor is earning during the year before it can be redeemed.
Treasury notes mature in two, three, five and 10 years. All were recently yielding about 5.35 percent.
For longer-term investors, the Treasury’s long bond has a 30-year maturity. Long bonds were yielding 5.56 percent on Aug. 18.
Financial planners generally recommend Treasuries for people with money that can be parked for long periods. But consumers with differing portfolios and economic situations can do the same.
“A variety of clients invest in Treasuries for different reasons,” Ballou said. “Often they use them to diversify a growth portfolio because they do have an element of safety.”
Financial planners say they often set up a varied portfolio made up of stocks, mutual funds and Treasuries for clients with fixed incomes. In those situations, Treasuries often make up a large part of that ladder.
And one thing to remember is if the interest rates fall, you can sell your Treasury for more than you paid. What makes Treasuries so valuable is they are liquid and can be sold for cash. Treasuries are also easy to sell because of the enormous size of the government bond market. In fact, the Treasury market is the world’s largest securities market, with average trading volume in excess of $100 billion annually, according to San Francisco Federal Reserve Bank officials.
The Treasury issues its securities at 159 auctions through the year. Small investors can submit tenders by mail to the Federal Reserve. (Information and forms are available from the regional Federal Reserve Branch at 230 S. LaSalle St., Chicago, Ill. 60604.)
Information on upcoming bill, note or bond auctions is available from Fed branches or from the Bureau of the Public Debt by phone at 202-874-4000 or on the Internet at www.
publicdebt.treas.gov.
Financial advisers say small investors intending to hold their securities until they mature should buy their Treasuries through Treasury Direct.
Treasury Direct is a simple program that allows anyone who understands the concepts of “bank by phone” or “Internet banking’ to get into the investment market. Investors can open up an account over the Internet and buy Treasuries by transferring money from their bank account.
Treasury Direct allows investors to buy from the Treasury without the commissions or fees they would pay if they bought them through a stockbroker or bank. Only accounts totaling $100,000 or more will be charged a $25 annual maintenance fee.
You can also authorize the Treasury to buy new securities, order new investments by phone or sell your securities back.
Investors who want to sell their Treasuries can call one of the Federal Reserve banks and have the electronic entry wired to a bank or brokerage where it would be sold on the secondary market. Treasury officials said the transaction normally takes two to three days.
Best of all, Treasury Direct offers a direct-deposit feature. Now, Treasury Direct puts money to cover refunds, interest and principal payments directly into your bank account.
“It’s a simple program that’s had great success,” said Dale Vanderheyden, a spokeswoman for the Bureau of the Public Debt. “Treasuries are a great investment for cautious investors. The important thing to remember with Treasuries is you’re making money and you’re helping your government by reducing the national debt.”
Here’s what’s available through Treasury Direct, all sold for a minimum of $1,000 and multiples of $1,000 after that:
– Treasury bills are issued for 13 weeks (three-month bill), 26 weeks (six-month bill) or 52 weeks (one-year bill).
The 13- and 26-week bills are auctioned weekly. Auctions are announced on Tuesday. The auction occurs the following Monday, and the bills are issued the Thursday after the auction. Fifty-two week bills are auctioned every four weeks. The auctions are announced on a Friday and take place the following Thursday. The bills are issued one week after the auction.
– Treasury notes have maturities of two, three, five and 10 years. Two- and five-year notes are normally issued on the last business day of the month. Three- and 10-year notes are issued quarterly in the months of February, May, August and November.
– Thirty-year bonds are issued in February and August.
To set up a Treasury Direct account, you can fill out forms available at any of the 37 servicing sites located at Federal Reserve banks and branches throughout the country. You can also call the Treasury Direct line at 800-943-6864, or the Chicago Federal Reserve Branch at 312-322-5322. You can also use the same numbers to check when the security you want is being auctioned. Or use the Internet site at www.public
debt.treas.gov
