Categorized | Investing

Savings Bonds Have Advantages Corporate Bonds and Municipal Bonds Don’t

In the classic 1949 edition of The Intelligent Investor, famed investing legend Benjamin Graham talks about the enormous advantages of using U.S. savings bonds as the primary foundation of the typical investor’s fixed income portfolio.  Unlike other bonds, they don’t fluctuate in value with interest rates, removing duration risk; they have certain tax advantages; they can be redeemed in thousands of locations with only a small penalty during the first five years of ownership and no penalty thereafter; they are registered so you can still get your money back even if you lose the bond certificate; they don’t have any commissions or fees; the list of benefits goes on and is fairly long.

Today, however, savings bonds, while still structurally superior to regular corporate and municipal bonds for the small investor, offer terrible future returns due to the interest rates that are actually negative once you’ve factored in taxes and inflation.  Nevertheless, it is important you take time to study these investments and how they work so you can at least have the information in the back of your head, allowing you to take advantage of rates when they rise (which they inevitably do).  The day will come when they are once again attractive and should be given priority in your holdings.

To get started, read The Beginner’s Guide to Buying and Owning U.S. Savings Bonds …

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