Why I’m Investing in Treasury Bonds Instead of the Stock Market
Inflation is skyrocketing, stocks are down, companies are freezing hires, and there's worldwide uncertainty around politics, so thinking about investing is a bit daunting right now.
That’s why I’ve decided to invest in Treasury bonds this year instead of the stock market.
While Treasury bonds have lower returns than other investments, I think their relative stability over the short term makes them a better option than other more volatile investments.
The Short Version
- With inflation skyrocketing, I’ve decided to invest in U.S. Treasury bonds, specifically, I-bonds.
I-bonds are inflation tracked, which means your money will grow with inflation. Right now, the interest rate is 9.26% through October 2022.
- While not for everyone, I-bonds are a low-risk investment, and for me, they are a safer bet than letting my money sit in a bank account or losing it in the stock market.
4 Reasons Why I Am Investing in Treasury Bonds Instead of the Stock Market
Inflation rose 9.1% in June, and I know I need to do something with my extra cash. Letting it sit in my bank account means I'm just losing money. I chose to invest in I-bonds specifically because they are easy to invest in, don’t lose value since the U.S. government backs them, and are adjusted for inflation.
1. The I-Bond Interest Rate Is 9.26%.
The Series I Savings Bonds, or I-bonds, are adjusted twice a year for inflation. Currently, the interest rate for I-bonds is 9.62% through October 2022, when they will be adjusted for inflation again. Interest is compounded twice a year, in May and November.
That means, at the moment, the interest rate on I-bonds is better than the current inflation rate. You can’t cash in the bonds for a year after purchasing them, so it makes sense to invest money you won't need until the following year. If you hold onto them for five years, you won’t have to forfeit the previous three months of interest.
The only major downside to the I-bond is that you can only buy $10,000 electronically each year (and $5,000 in paper I-bonds if you get a federal tax refund). In addition, you must purchase them directly through the U.S. Treasury. However, you can also buy other U.S. Treasury bonds through your broker, such as TIPS, which are also adjusted for inflation.
2. High Inflation Is Likely to Stay Around For a Little Longer.
Since I have to hold onto the I-bonds for at least a year (and I’ll likely want to hold onto them for a little longer), one thing I’ve considered is how long the current inflationary environment will last.
While I can’t predict the future, experts seem to think the current high inflation rates will stick around until at least 2023. Another consideration is that some inflation tends to happen every year. So even if inflation goes back down to only 1.5% or 2% a year, I-bonds will still be making more money than having that cash in my bank account.
To me, it makes sense to invest in treasury bonds now and hold onto them until at least inflation cools or keep them as part of a diversified investment portfolio.
3. Stocks Are in a Bear Market.
The other reason I’ve decided I’ll invest in Treasury bonds this year is that the stock market isn’t doing so great. In fact, Wall Street is in a bear market right now amid worries about inflation and higher interest rates.
And while some might argue that it’s an excellent time to buy the dip, there is a reason specific to my circumstances that make buying stocks a bit more complicated. Namely, I don’t live in the U.S. This brings me to reason four.
Read more >>> Best Defensive Investments to Survive Bear Markets & High Volatility
4. I am an American Living Abroad.
I’ve been living abroad since 2016. Investing as an American abroad isn’t easy. I currently live in France, meaning many U.S.-listed ETFs are unavailable to me. Robo-advisors require clients to live in the U.S., while foreign investments are often heavily taxed in the U.S., making them relatively costly.
The only two options I have are to invest in individual stocks and bonds or hire a wealth manager to invest on my behalf. Many wealth managers require their clients to have a significant amount of money in assets; unfortunately, I am not near that threshold.
So my only viable option is to DIY it. Thankfully it’s possible to invest in U.S. Treasuries if you’re a U.S. citizen, even if you live abroad.
The Bottom Line: Don’t Let Inflation Eat Away Your Savings
With inflation at its highest in four decades, keeping your money in a bank account is one of the worst things you can do. At the very least, consider keeping your money in a high-yield savings account.
Investing in U.S. Treasury bonds like the I-bond or TIPS could also be an option, especially if you don’t want to risk your money in the stock market and don’t mind not having access to your funds for a few years. Investing in bonds might not make sense for everyone’s portfolio, but it’s worth looking at, especially with inflation eating into everyone’s bottom line.
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