Suze Orman: Treasuries Are Paying This Much -- Why You're Missing Out
If you follow personal finance expert Suze Orman, you know she’s been a big supporter of buying Treasuries. She’s told listeners they’re the safest of all bonds because they’re backed by the United States government.
According to Orman, she invests in Treasuries and advises her followers to allocate a portion of their portfolios to them.
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MoneyLion spoke to some other personal finance pros for their takes on Treasuries. Read on to see what they said and some potential steps you could consider taking now.
Why Experts Like Treasuries
“Suze is onto something real here, and I've been saying the same to my readers,” said Andrew Lokenauth, founder of the blog Fluent in Finance. “Treasuries pay you a solid, safe return right now, somewhere around 4% to 4.5% depending on the term. For money you can't afford to risk, that's tough to beat, because it's backed by the United States government and the interest is exempt from state and local tax.”
“Treasuries are a lower-risk option that can be a good part of a diversified portfolio,” said Melanie Musson, a finance expert with Quote.com. “When you’re deciding how much risk you should assume, you have to consider your age, income, goals, and more. Generally, you want lower risk as you get older.”
Why There’s Reason To Be Cautious
Musson added that you can include Treasuries in your portfolio, but you don’t need to.
“Right now, a 52-month bill has an interest rate of around 4%, and a 20-year bond has an interest rate of around 5%,” she explained. “You can open up a high-yield savings account and find interest rates at a similar level. So, you’re giving up flexibility with a Treasury product with little reward.”
“Mutual funds typically earn investors rates of return that are twice those offered by Treasuries,” Musson said. “There is more risk with that, but they’re still lower-risk investments, especially for the long term. Treasuries are not earth-shatteringly great, but they’re not bad, either.”
Why You Need To Examine Your Finances
According to Lokenauth, here's something to consider when it comes to Treasuries.
“First, keep your true emergency cash and any money you'll need within a year or two in short-term T-bills, where you're earning close to 4% instead of the pennies most checking accounts pay,” he said. “You can buy them direct through TreasuryDirect.gov with no fees, or through a brokerage.”
Lokenauth likes building a ladder, where you buy bills that mature every few months, so cash keeps freeing up and you can reinvest at current rates.
“The balanced view is this,” he explained. “Treasuries work for safety and short-term needs, and stocks still win for long-term money. But for the cash you want to protect, locking in 4% risk-free is a smart, boring move I stand behind.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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