Are Government Bonds A Good Idea ?
Government bonds are issued in multiples of 100 and they usually have a maturity period ranging from one year to thirty years. However, these bonds are not purchased at face value. Instead the investor either purchases them at a premium price or a discounted one. |
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Once the government bond is bought, the investor is entitled to a fixed rate interest until the bond matures. Usually the interest is paid half yearly; and the investor gets back his principal amount once the bond matures.
Sometimes, investors do not wait for the bond to mature. Instead they sell the government bond. If the market interest rate is below the interest rate of the bond, then the investor ends up making a profit.
Government bonds have been long preferred by investors who do not want to take too much risk with their money. They are considered safe investment instruments. But are government bonds a good idea for an investor?
If we take into consideration the current economic situation in the US, then we can say that the economy is on the path of recovery. The housing industry is also recovering and consumer confidence has increase. Even unemployment is not so bad. The bad news is the government bonds are not popular when investors started getting happy and excited about growth.
In addition, the Federal Reserve announced that it is ending the Quantitative Easing Program, where it the Reserve was buying Treasury bonds and supporting the bond market. This is a clear indication that the interest rates are due to rise some time in the future.
In addition, government bonds offer regular fixed income for investors, they are considered safe investment vehicles and can be sold in the secondary market with ease. All the benefits show that buying government bonds is generally a good idea for people who want to stable investment portfolios but still want to diversify their investments.
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