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Investing in Zero-Coupon U.S. Treasury Bonds |
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Investing is an essential tool for creating wealth and securing a financial
future. As a lower secondary student, you might have started thinking about ways
to save money and build a nest egg for the future. One of the most popular
investment options is bonds, also known as debt securities. Bonds play a
significant role in the economy and are a popular choice among investors.
However, investing in bonds comes with certain risks, such as price fluctuations
and reinvestment risks.
If you're looking to invest in bonds but want to avoid these risks, consider
zero-coupon U.S. Treasury bonds. These bonds are an excellent option for
investors with a fixed investment horizon. Unlike traditional bonds, zero-coupon
bonds don't pay interest but offer a profit due to the low price at the time of
purchase and a higher price when sold. As the value of these bonds is inversely
proportional to the market rate and duration, investors with a fixed horizon
carefully consider using them.
According to Smith (2022), Treasury bonds often rise dramatically in price when
stock prices fall. Therefore, zero-coupon bonds can be a valuable asset in your
investment portfolio, especially during market downturns. They are also a safer
investment option than traditional bonds since their real payoff is implemented
only once and is predetermined.
It's important to note that if you sell zero-coupon bonds before maturity, you
may not get the same sum you paid. However, if you hold onto them until
maturity, you're guaranteed a predetermined payout.
Investing in zero-coupon U.S. Treasury bonds can be an excellent way for lower
secondary students to reduce price and reinvestment risks while securing a
reliable source of income. By utilizing these bonds, you can start building your
investment portfolio while ensuring financial security for your future. |
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