Investment was once something thought of as what rich people do.
Today, investing plays a key role in the financial well-being of
millions of Americans. The Securities Industry Association has stated,
“the growth in individual investor participation has risen from
30.2 million U.S. shareowners in 1980 to 84.3 million in 2002.”
According to a survey published by the Investment Company Institute and
the Securities Industry Association, the latter figure encompasses 49.5
percent of U.S. households. Yet, how many of these investors
really know the ropes when it comes to making the right investment
decisions? Woefully few, laments the Oregon Department of Consumer
& Business Services’ Division of Finance & Corporate
Securities, noting that, “Less than one-fifth of those [Americans,
who may or may not have been investors] polled passed a simple test asking
whether stocks, bonds, savings accounts or certificates of deposit offered
the best return over the last 20 years.”
So what can you do to avoid becoming financial fodder when it comes
to investing your money? For the conservative investor, savings
bonds may be a vehicle for accumulating profits while preserving both
capital and a sound night’s sleep.
Savings bonds appeal to investors for a variety of reasons. Savings
bonds are backed by the full faith and credit of the issuing
government; in the case of U.S. Savings Bonds, this fact ranks them
among the safest investments in the world. Canada likewise has an
excellent debt rating. U.S. Savings Bonds are free of both state and
local income taxes, which increases their effective yield. Since taxes
are paid at the time a savings bond is sold, savings bond income is
considered to be tax-deferred. U.S. Savings Bonds purchased
beginning in January 1990 may be free of all Federal tax if used to pay
for a child’s college tuition, subject to parental income level
limitations. Finally, U.S. Savings Bonds are extremely easy to purchase
through banks, savings and loans, payroll deduction plans or
TreasuryDirect. A U.S. Savings Bond can be
purchased for as little as $25.
Interest earned on savings bonds is low compared to other forms of
investment. A conservative investor, for whom preservation of capital
is of prime consideration, may well consider a lower interest rate to be
an adequate trade-off for the security and peace of mind achieved by
purchasing government-backed savings bonds. Saving for your child’s
education or generating tax-deferred income for retirement are other good
reasons to consider investing in savings bonds. Keep in mind that savings
bonds should be used to supplement a retirement plan rather than as
the sole source of income for retirement.
Authored by Kenneth L. Anderson.
Original article published prior to 13 April 2003, updated
13 November 2004.
Follow links to the right to learn more about government-issued, government-backed savings bonds.
At the left margin, Related Links address topics of interest
pertaining to information, resources and services for investing and trading in the stock, bond, commodity and
real estate markets. View the
Bond Investing SiteMap
for a complete list of stock, equity and bond investing topics.
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