Investing Government Securities

Government Securities - What are You Waiting for? Take the Plunge! 

Government securities are one of the safest in the market. Available at the primary and secondary market of securities, they are avidly searched by all kinds of financial institutions. Their faultless history, spectrum of choices and high liquidity gives government index securities a top notch qualification.

Who Can Invest In Government Securities?

Any organization or individual who wished to invest in them. There are no limits or impediments to do it. You may buy them through two kind of organizations. The first is the Legacy Treasury Direct, in which the individual buys the security directly from the US Government. The other one is the Commercial Book-Entry System, where brokers, dealers and other kind of intermediaries buy them to the US Government.
How Many Types of Government Debt Securities Exist?
There are several types of government securities available in the market, and each one of them is used by different kind of investors:Zero Coupon BondsThe main difference of a zero coupon bond is that it doesn't make any kind of payment during the period of the bond, only at the end. They have become quite popular in the last years.

Treasury Bills
These kind of bonds are the shortest government security available. Considered a high risk investment, they don't offer any kind of interest gain during the lifetime of the bill, only at the end. They are very similar to zero coupon bonds, but the main difference is the amount of time they endure (only a few months instead of decades).

Treasury Note
With a maturity period that goes from one to ten years, the payments are made every six months. Used as a benchmark for setting the interest rates of mortgages, the 10 year treasury note has become the preferred financial instrument for measuring the state of the US economy.

Treasury Bond
The mature period of this security goes from ten years and onward. It's one of the preferred government securities used by pension funds or insurance companies who look for long term investments. The payments are also made every six months.

Treasury Inflation-Protected Securities (TIPS)
TIPS are one of two kind of securities issued by the US Government that are protected from inflation. They are tied to the Consumer Price Index (CPI) in such a way that, if there is inflation or deflation, the initial investment increases or decreases, respectively. The payments are made every six months

U.S. Savings Bonds
Unlike other kind of government securities, these bonds can't be traded in the secondary market. They are sold to individual investors and can only be bought directly from the U.S. Treasury.

It's not uncommon to find investors who have a high percentage of their portfolio composed with these securities. A government securities investment fund would use almost all of these instruments, assuring the organization or individual the stability of his investment.

Benefits and Risks of Investing In Government Securities 
One of the benefits of government securities is that some of them don't pay state or local taxes. That means a higher return on security investment. US Treasury Notes, Bills and Bonds fall within this category. Zero coupon bonds are included too.

Unfortunately, TIPS have a limited advantage regarding taxes. Although they don't pay local or state taxes, they do pay federal taxes.

The main risk is the cost of opportunity. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities. So, if you pursue this path, you may find yourself wondering a what if scenario

Why Are US Government Securities Such an Attractive Investment
The main reason is that they are backed up by the United States Government. Since the USA has demonstrated long periods of political stability along its history (the Civil War is the only major setback in more than 200 years of democracy), it has earned the trust of the financial community.

Caution. The US Government issues securities through it's agencies but you may find a concept known as government sponsored enterprises (GSE). Under this umbrella, these organizations issue securities which aren't backed up by the government, only sponsored. Floating Rate Bonds (FRB) are one of those papers; and two well known GSE's are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

So, if you are looking for a secure, low risk investment for your money, then this is the kind of financial instrument you should be looking for. As you may find through your research, the government index securities have a stupendous classification, unparalleled in all the world. Finally, as a word of advice, buy your government securities through out from a broker. They will orient you and give advice over which type of security you should acquire.