Investment in Government Bonds Presents Little Risk?

You can either stuff your money into a mattress or chose to invest in government bonds. Government bonds from the U.S. Treasury present little risk to investors and are one of the most liquid forms of investments available. Bonds are for investors willing to accept a lower yield but looking for solid security. You can purchase government bonds from a stock broker and pay a commission or directly from the government. The safety, tax benefits and market-based yields of government bonds can help you reach financial goals.

It is easy to buy government bonds. Most financial institutions will sell the bonds to you. It is also possible to purchase them through a payroll savings plan at work. You will have the convenience of earning market-based rates for 30 years on the bonds. However, if necessary, you can cash the bonds at anytime after six months. If the government bonds are stole, lost or destroyed, you can have them replaced after establishing that they have not been cashed.

While government bonds are one of the safest investment vehicles, they are not without certain risks. The value of a bond decreases when interest rates go up. Keep this in mind if you have to sell your government bonds before they reach maturity. The face value might be more or less, depending on the interest rate. Also, the risk of inflation can affect the value of your bonds.

Government bonds are also a great way to save for your child's education. You might be eligible for significant tax savings when used to finance education expenses. Interest payments are exempt from state and local income tax. Additionally, you can defer federal income tax payments until the 30 year maturity or when you decide to cash the bond.

When you have financial goals such as buying a house of funding your child's education, government bonds are still a safe place to invest. These bonds also offer a great way to balance your stock portfolio. The risk that comes with holding stocks is lessened if you are close to retirement. Government bonds are a conservative way preserve your cash, ensuring the money is there when you need it.