When I hear the word treasuries the first thing that comes to mind is the public aversion of it. It is currently the most underrated investments in the general public mind. Why is that? Well, let’s begin with a very basic fact about them.
Treasuries are issued to raise money, the way they are distinguished is in terms of maturity.
- Bills Maturity: less than 1 year
- Notes Maturity :1 -10 years
- Bonds Maturity: 10 – 30 years
In addition state and local governments could also offer their own securities.Their pricing works like a normal bond market, the value of the bond is usually inversely related to the interest rates.
Treasuries offer a lot of advantages which traditional stocks don’t offer. They are highly liquid, so any time investors need cash, it can be very easily sold. In addition,they are backed by the government, meaning they cannot be defaulted on. Another advantage is that they also offer lots of tax exemptions.
These investments should be highly desirable, but they don’t rank that high for an average joe investor. The security they offer comes at a price, of lower returns. For an average investor the desire to earn higher return even at a higher risk trumps the security offered by treasuries. There is one more factor which works against them, good old love for stock market and distrust for the government. And yet they have consistently performed well.
So why do we need to revisit treasuries as an investment? It is important to note that the last big recession was in 2008 and on average a recession comes every 10 years. The stock market which seems to be booming has become increasingly volatile and in some cases performing well defying economic fundamentals. So it might be prudent to have some portion of wealth invested in treasuries to balance the volatility.