Looking to diversify my portfolio a bit with something more stable. What's the best way to go about this? Just directly or through a broker? Any tips or tricks I should be aware of?
2wealfth Man said:
yep; treasury direct is the way to go; like a DRIP account.
JJMt said:
I am not an expert on this, so someone more knowledgeable than me should chime in.
My impression is that one of the benefits of bonds over "high-yield" savings account is that with bonds you can get both the high-yield plus the potential for the appreciation of the bond itself if interest rates generally were to fall. The negative, obviously, is that if interest rates rise, you're stuck with your bond until it matures, whereas in a savings account you'll probably enjoy the benefit of the higher rates.
The likelihood you'll achieve capital appreciation on treasury bonds in the face of falling interest rates depends largely on the duration of the bond you purchase. If you buy a bond that is going to mature in a year or two years, you won't see much capital appreciation in the face of declining interest rates. If you buy bonds that mature in 10+ years, that's a different story.Champ Bailey said:JJMt said:
I am not an expert on this, so someone more knowledgeable than me should chime in.
My impression is that one of the benefits of bonds over "high-yield" savings account is that with bonds you can get both the high-yield plus the potential for the appreciation of the bond itself if interest rates generally were to fall. The negative, obviously, is that if interest rates rise, you're stuck with your bond until it matures, whereas in a savings account you'll probably enjoy the benefit of the higher rates.
That's how I understood it. And my thinking is that unless we hear from the Fed meetings today, interest rates are unlikely to increase anymore for a while. Even if they do, they are likely to drop again if/when the market corrects from this historic expansion. So buying now will mean it becomes more valuable in a couple of years. Either way I'm getting a stable ROI.
That's my basic understanding of it, if I'm wrong on something be sure to correct me.
In the time that this has been posted, the 10YR UST has dropped 13 basis points. So Interest Rates are "naturally" going down from just when you posted.Woody2006 said:The likelihood you'll achieve capital appreciation on treasury bonds in the face of falling interest rates depends largely on the duration of the bond you purchase. If you buy a bond that is going to mature in a year or two years, you won't see much capital appreciation in the face of declining interest rates. If you buy bonds that mature in 10+ years, that's a different story.Champ Bailey said:JJMt said:
I am not an expert on this, so someone more knowledgeable than me should chime in.
My impression is that one of the benefits of bonds over "high-yield" savings account is that with bonds you can get both the high-yield plus the potential for the appreciation of the bond itself if interest rates generally were to fall. The negative, obviously, is that if interest rates rise, you're stuck with your bond until it matures, whereas in a savings account you'll probably enjoy the benefit of the higher rates.
That's how I understood it. And my thinking is that unless we hear from the Fed meetings today, interest rates are unlikely to increase anymore for a while. Even if they do, they are likely to drop again if/when the market corrects from this historic expansion. So buying now will mean it becomes more valuable in a couple of years. Either way I'm getting a stable ROI.
That's my basic understanding of it, if I'm wrong on something be sure to correct me.
I'm not sure I agree that interest rates are more likely to go lower from here than higher, but if that's your conviction, it would be better to buy a longer-duration treasury ETF so that it is easy to liquidate and redeploy into higher-earning investments. Selling individual bonds requires getting bids and potentially taking a discount on top of the additional transaction costs to liquidate multiple holdings rather than one.