General Government Bonds – Forward you go to become THE Rich Grandma

We have Roth IRA’s, 401Ks, High Yield Savings Accounts, and are using index funds. I know it seems like a lot but we have only just scratched the surface. I KNOW – I’m crying as well. But don’t worry we are going to be breaking it down into manageable chocolate  cake pieces (with sprinkles, ice cream, and brownie chunks). Let’s introduce the baddie – government bonds!!!!!!

My emotions when I learns THERE'S MORE 😭

So there are many types of government bonds, like A LOT. But today we are just going to be talking about the general view towards them. The definition is “a debt security issued by a government to support spending and obligations” OR in other words when you buy a bond you are lending money to the government to help them fund projects (an IOU). 

Because you buy bonds through the government (like the people running the US) they are considered a pretty low-risk investment. The way it works is you buy a bond and then the government pays you back with a set interest rate for a set period of time. Because these investments are low risk, that also means it comes with low interest rates. So, solely buying government bonds may not be the best move. 

EXAMPLE TIME!!: 

Let’s say I buy a bond from the government for $500 (principal amount)

The government guy/person/human than says, “Okay, and I will pay a 5% interest rate”

I go: “Oh my gosh, yay! But what is the maturity date” – A maturity date is just the day when the loan should be fully repaid as well as any remaining interest on it

The government says: “30 years”

…Well I really can’t negotiate with the government so “I will take it!” 

Cue end of example 

As you can see, most government bonds have REALLY LONG waiting periods. But, government bonds can be sold to make short-term capital – especially in emergency times. Another name for being easily sellable is called liquid. Don’t ask me why, if someone knows please leave a comment :) 

Another thing to keep in mind is that if interest rates are to ever increase, the value of government bonds decreases. So although there is a market for selling government bonds, you may not always get your bucks back. 

So the big question – Is it worth it???

I struggle with indecisiveness too

I can’t obviously tell you whether government bonds are worth it or not but I will give you the pros and the cons 🙂

Pros: 

• Low risk (because government)

• A liquid market 

Cons: 

• Low rate of return (low interest rates)

• Long maturity periods

• Risky if interest rates increase 

Government bonds are a secure investment to have and can be beneficial if you ever need short-term money. But the long periods and risks should definitely be considered – especially if you decide to sell your bonds. Stay tuned for the next post on a more in-depth dive on the types of government bonds and how to buy them today! 

Sources: 

https://www.investopedia.com/terms/g/government-bond.asp

https://www.youtube.com/watch?v=-0HQltcbglw