How to Invest in Government Bonds & Treasury Notes

U.S. Treasury Department

Investing in U.S. Treasury Bonds is widely considered one of the safest investments on the planet. Each year, billions of dollars in U.S. backed government bonds are sold to American companies, foreign companies and even foreign governments. For the average investor, there are a few select ways to purchase these fixed income investments. You can purchase them in mutual funds or ETFs just like any other traditional investment, but you can also purchase them individually on TreasuryDirect.gov commission free.

Things You'll Need

• TreasuryDirect.gov account Brokerage or mutual fund account Adequate funding for purchases

Instructions

1. Buy U.S. Treasury bonds commission free at TreasuryDirect.gov (see Resources). This is an online store created by the U.S. Treasury Department for everyday investors who want to buy government backed bonds without paying a commission to a broker. At Treasury Direct, you can buy: Treasury Bills, Treasury Notes, TIPS, Treasury Bonds, EE/E Savings Bonds, I Savings Bonds and HH/H Savings Bonds.

2. Invest in mutual funds that own government bonds and treasury notes. Various investment management companies offer a safe and convenient way to invest your 401(k) or IRA funds by making a few clicks of a mouse or by placing a call to their customer service department. Companies like Vanguard, Fidelity and T. Rowe Price are excellent places to begin your search. You should contact your investment adviser for further details.Examples of mutual funds holding U.S. Treasury Bonds are Vanguard Short-Term Treasury Bond Fund (VFISX) and Vanguard Long-Term Treasury Bond Fund (VUSTX).

3. Invest in Exchange Traded Funds (ETFs) that hold government backed U.S. Treasury bonds. ETFs trade on the stock market just like stocks but own a variety of assets exactly like mutual funds. They can occasionally offer some additional flexibility and cost savings from traditional mutual funds but can often be used as trading vehicle for day traders. Once again, Treasury laden ETFs are offered by investment management companies like Vanguard, but also from newer companies like iShares.com and Proshares.com, to name a few. You can purchase them using a standard online discount broker.
   Examples of ETFs holding U.S. Treasury Bonds are iShares Barclays 1-3 Year Treasury Bonds ETF (SHY), iShares Barclays 7-10 Year Treasury Bonds ETF (IEY), iShares Barclays 20+ Year Treasury Bonds ETF (TLT) and iShares Barclays TIPS Bond Fund ETF (TIP).

Tips & Warnings

• If you buy a bond on TreasuryDirect.gov, you will not receive a "paper bond" due to the governmental paper reduction act. The records will be stored electronically and accessible via your online account. Government backed bonds are considered ultra-safe investments, but they can be viewed as a negative due to a lower return on your investment. This can negatively affect your retirement savings, if you save very little money.

• Contact your investment adviser before investing or do your own due diligence. If you are merely looking to trade bonds (that is, hold them short term), or hold your money in bonds during times of uncertainty, it would be more advantageous to buy mutual funds or ETFs since you can easily trade these bonds on the open market. ETFs containing U.S. Treasury Bonds have become a popular trading vehicle with active traders and day traders, so use some caution if purchasing them.

Resources

• TreasuryDirect.gov
• Vanguard.com