Government Bonds: Still a Safe Bet

Provided By www.investmentoption.org

One of the safest investments a person can make is to buy bonds from the government -- their value is guaranteed and, although returns are small, they will appreciate in value with no input from the investor.

No matter how bad conditions may be, the government does not reserve the right to delay payment. An owner merely has to identify himself at a bank or other bond agency, and in a few moments he has the cash, in the amount printed on the bond. Of course, if the banks should close, it might be impossible to raise cash on any investment for a short while. Aside from that possibility, an E bond is practically as liquid as currency in your pocket, and with interest added.

Among bonds, only the U.S. savings bonds are strictly fixed-dollar, meaning that an owner can surrender them at any time at a price known in advance. On other bonds, including U. S. Treasury bonds, the issuing government or corporation has no responsibility for redeeming, until the maturity date arrives. A bond-issuing organization may have a high credit standing, but one of its bonds may still be quite difficult to sell, because no one happens to want to buy that specific bond. When an investor is about to buy a bond, naturally the salesman does not warn him of the difficulty of reselling; so an amateur buyer learns only by personal experience, as the writer himself did. Probably the simplest way to judge whether a bond is readily saleable is to see if its price appears frequently in one of the metropolitan newspapers that print prices daily on hundreds of bonds.

Contact between bond seller and buyer is usually made through a stock dealer or broker. The price is whatever the seller and buyer can agree on. A seller may run into a serious drop in price, especially in a year such as 1957, when a tight money market has pulled down the prices on old bonds. But when an investor must raise money, he is much better off if he owns a bond he can sell at a sacrifice rather than one that nobody wants to buy at any price at that time.

A deposit in a bank or savings institution can usually be cashed with no difficulty. Since 1942 so few of these institutions have failed that most people assume their deposits are perfectly liquid. But during the 1930s 11,000 of these institutions in the United States were closed, temporarily or permanently, on account of financial difficulties. The establishment of insurance systems and other improvements has made it quite unlikely that trouble will reoccur on such a big scale as in the 1930s. But a saver today has no grounds for assuming that merely because a place is called a bank or savings-and-loan or credit union or such, it will always pay off on demand. Nor should he assume he knows what an institution means when it says it is "insured" or "safe."

Nineteen out of 20 banks in this country are covered by the Federal Deposit Insurance Corporation, but this leaves over 1,000 banks not so covered. Many savings and loan associations give the impression that savings placed in them are just as safe as in an insured bank. They display seals that say: "Safety of your savings insured up to $10,000. Federal Savings and Loan Insurance Corporation."

Adding bonds to your portfolio is a good way to diversify and guarantee yourself at least the amount of cash you put into the bonds in the first place. There are few other such safe investments available.

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