Treasury bonds — a conservative investment?
Hello Terry, I am interested in Treasury bonds but know only a little about them. My wife and I are ultra conservative when it comes to investing. We currently have money in the stock market in what is considered a conservative portfolio that is supposed to average around 4% yearly. Lately with the ups and downs of the market, it is not doing well. From what I know of Treasury bonds, they are 20 or 30 years and the interest rate at the time of purchase remains the same throughout the term. You can get out anytime after 45 days, but moving the money out, is more involved than when T bills mature. Currently the 30 year is paying around 4%. Would you suggest we move our money out of the fluctuating stock market and into the guaranteed 4% of a Treasurybond?
Terry Says
You are wrong in your assumptions in so many ways that I can’t begin to respond!
Almost every stock portfolio is down this year — and no one ever told you that your portfolio would average 4% a year! If they did, then you are dealing with the wrong people. Actually the S&P 500 has average a 10% return (with dividends reinvested) over the LONG RUN (defined as at least 20years).
So you need to figure out your time horizon. There has never been a 20-year period when a diversified portfolio like the S&P 500 with dividends reinvested lost money — even adjusted for inflation.
If you only earn 4% and inflation is much higher, you are a sure loser.
No one advises buying long-term Treasury bonds these days. When interest rates rise, bond prices fall. In fact, in 2022 people who invested conservatively in longer-term bonds lost more money than in a conservative stock portfolio!!
If you don’t want to lose any money and come closest to keeping up with inflation, buy 26-week Treasury bills. Read this article: https://www.terrysavage.com/t-bills-beat-cds/
And if you “learned” all the wrong stuff in your question, please find another teacher. Or a fee-only FIDUCIARY financial advisor to guide you through your financial planning. Read this to find someone you can trust.
