Page 37 - Southern Exposure - February '24

Southern Exposure, Page 37
Treasury Bonds: Still Safe For Investors
You may have read reports about an impending “debt
crisis” in the United States. Should you be worried about
investing in Treasury securities? faith and credit – that is, the ability to borrow and tax – of
Part of the concern over debt has been driven by the
cost of government borrowing, which has risen because
of higher interest rates. But it’s worth noting that while
interest expenses have risen to nearly 2 percent of gross
domestic product (GDP), this measure had exceeded 3 the federal government for a specific period of time. receive semiannual interest
percent in the early 1990s. So, while the upward trend
of federal debt could prove problematic down the road,
the claims of a current crisis may be overblown. And
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Treasury securities are still considered among the safest • Treasury note – Matures
investments in the world, as they are secured by the full in between one and 10 years
• Treasury bond –
the United States. Typically matures in 10 to
In any case, if you haven’t invested in Treasury 30 years
securities, you’ll want to know the basics. First of all, when When you buy Treasury
you purchase a Treasury security, you’re lending money to notes or bonds , you
Here are your purchase options: payments, but when you
• Treasury bill – Typically matures in four, 13 or 26 purchase a Treasury bill – a
weeks, although some have maturities of up to a year T-bill – you generally buy it
at a discount, and when the
bill matures, you receive its face value. So, for instance,
you might pay $4,700 for a 13-week T-bill and get $5,000
back at the end of the three months.
When investing in Treasury securities, you’ll want to
keep these features in mind:
• Price fluctuation – While your interest payments will
always remain the same, the market value of your Treasury
security can change. So, you might not get face value for a
Treasury bond if you sell it before it matures, particularly
if market interest rates are higher than the rate you’ve been
receiving. Because longer-term bonds have more payments
left to make than shorter-term ones, they are more sensitive
to interest rate changes and market price fluctuations.
• Taxes – Interest income from Treasury securities is
subject to federal income tax but exempt from state and
local taxes.
In addition to the traditional Treasury bonds, bills and
notes, another option is available: Treasury Inflation-
Protected Securities (TIPS). Unlike other Treasury
securities, in which the principal is fixed, the principal
of a TIPS can move up or down, based on movements in
the Consumer Price Index for Urban Consumers (CPI-U).
Once your TIPS matures, if the principal is higher than
the original amount, you’ll get the increased amount; if
the principal is equal to or less than the original amount,
you’ll get the original amount. TIPS pay a fixed interest
rate semiannually until maturity, but because interest is
paid on the adjusted principal, the amount of your interest
payments can vary. As with other Treasury securities, you
can hold a TIPS until maturity or sell it before it matures.
Don’t let scary or gloomy predictions discourage you from
considering Treasuries – they remain a good option as part
of the fixed-income portion of your investment portfolio.
This article was written by Edward Jones for use by
your local Edward Jones Financial Advisor, Edward
Jones, Member SIPC.
Edward Jones is a licensed insurance producer in
all states and Washington, D.C., through Edward D.
Jones & Co., L.P., and in California, New Mexico and
Massachusetts through Edward Jones Insurance Agency
of California, L.L.C.; Edward Jones Insurance Agency of
New Mexico, L.L.C.; and Edward Jones Insurance Agency
of Massachusetts, L.L.C.
Edward Jones, its employees and financial advisors
cannot provide tax advice. You should consult your
10 Contact us at (561) 748-7600, Sally Sima Stahl, AAMS,
qualified tax advisor regarding your situation.
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