Sunday, April 29, 2012
Are Savings Bonds Still A Viable Investment Option?
For years, the cornerstone of a good investment portfolio was federal savings bonds. They were considered so much of a good investment, in fact, that many families had a special shoe box in which their bonds were kept, if not a safety deposit box or a safe. Sadly, those days are long gone. Throughout the 1990s and into the 2000s, opting for such a safe investment was considered foolish largely because the stock market remained on an upswing, returning rates far in excess of anything that a savings bond could offer. Today, however, many investors regret that they held on in the stock market for as long as they did, rather than having the foresight to pull out when things were really good and avoid damage to their portfolios by looking at safer options. As with many things, the best that can be said is that hindsight is no better than 20/20. The best thing that we can do is avoid repeating such mistakes in the future. Today, with the economy still recovering from the major upset of the last decade, is surprisingly the best time to re-enter the stock market. Prices, while fluctuating, still are trending in a relatively upward direction, though economists and market analysts still say that it could be decades before the market reaches another record high like was seen at the height of the economic boom. So where does that leave savings bonds? Bonds, being a safe investment should always be a mainstay in your investment portfolio, though when the economy is in an upswing mode, they are less desirable to have as the backbone of your investments. In order to achieve good growth in your assets as well as stability of their value, consider the old adage of not putting all your eggs in one basket. A diversified portfolio is more likely over the long run to maintain its value through the ups and downs of the economy, and will help prevent you from running into the situation in which you find yourself just a few years from retirement and holding relatively worthless stock. Conversely, holding some stock avoids putting you into the position of reaching retirement considerably short of what you'll need to survive on. As of January 1, 2012, the United States Treasury no longer issues paper bonds the way you might remember them. In fact, the only way to get a paper bond is to purchase them with your income tax check. Instead, they are purchased through a United States Treasury electronic account. Basically, you deposit money into a treasury savings account similarly to the way you deposit money in a standard savings account, except in incremental amounts. It can be done through payroll deduction or simply by initiating a money transfer from your bank. The bonds are purchased in specific denominations over 25 dollars, and then when they have matured, you can choose to roll them over or withdraw the proceeds. The two types of bonds currently available include Series I bonds, which are inflation-indexed, meaning that they will maintain their value above the rate of inflation, and series EE bonds, which earn a fixed rate of return. There are numerous tax advantages to purchasing bonds, including exemption from local and state income taxes, but the advantage of being a safe and stable investment that still trumps the rate of inflation is by far the best advantage that bonds offer.