The 20-Year Treasury Bond

A Treasury bond is largely thought to be the safest form of investment on the market at any point in time. First, a bond is generally a safer investment than a stock. The bond's value is not tied to performance. The only risk is that a bond will not be paid back is if the company defaults on the note. Since a T-bond is backed by the US Treasury, which can print money, this risk is all but eliminated. Treasury bonds are issued in lengths of time over 10 years, and the 20-year T-bond is one of the most popular options.

Why Choose a 20-year Bond?

20-year Treasury bonds are great instruments for long term savings. They are popular as options to save for a nest egg, college education or retirement. Treasury bonds also have a tax free status in both federal and state income tax reporting. This offers them a significant competitive advantage over other bond options. If you do place the bonds into a tax deferred retirement account, the tax benefits of the bonds can change, so it is important to discuss this issue with an accountant to plan correctly.

Long Term Bond Benefits

The main benefit of a long-term bond, over a short-term bond, is the fact it will pay a slightly higher interest rate. The reason for this is because you are agreeing to purchase the bond without asking for repayment for an extended period of time. As such, you are rewarded with a higher repayment once the period is over.

Long Term Bond Risks

While you own the bond, your funds will be unavailable. You can sell a T-bond, but there is no guarantee there will be a profitable chance to sell before the bond's maturity. In addition, your funds will be tied up for 20 years. There is also an increased risk because long-term bond are a little more risky, due to default or inflation.

Protection from Default

With a Treasury bond, you are protected from default. A national bankruptcy could be a risk, particularly in a developing nation. However, the United States economy is well-capitalized, and the government has a good record of repaying these bonds dating back to World War I. In fact, investors from countries around the world purchase US Treasury bonds because of the low risk of default and the guaranteed returns.

Protection from Inflation

Inflation is perhaps the biggest risk with a long-term bond of this nature. If the rate of inflation outpaces the interest rate on the T-bond over 20 years, you will lose money on the investment even if the principal and interest are repaid. This can be overcome by purchasing inflation protected securities. TIPS Bonds and I Bonds are both protected from inflation by offering two separate interest rates. The first interest rate is the guaranteed return. The second rate is set as a constant with the rate of inflation. This is either added to or subtracted from the original interest, assuring your bond keeps pace with the rate of inflation on the market as a whole.

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