Treasury Bonds? Need some info....greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
We have all of our moula out of anything other than a straight checking account and the secret place where the rest is. Except for one thing: our daughter's college fund. My father-in-law just turned over custody of it to us after being the custodian for the first almost-5 years of our daughter's life. My question is: are treasury bonds linked to the stock market in any way? This is making me nervous. I don't know how bonds work. Considering the fact that the hubby and I think that Y2K will probably be a 5 or more (but we WANT it to be a 0!!!!) should we take the money out? What will happen? It started off with $10,000 when she was born and is now up to $16,500.
Could someone give me some scenarios for if we took the $$ out and then Y2K was a BITR? How penalized would we be? It is in a Charles Schwabb account. Thank you.
-- Preparing (firstname.lastname@example.org), October 17, 1999
BTW, I need some real answers here. I don't really care about the opinion of people who think Y2K will be a big party.
-- Preparing (email@example.com), October 17, 1999.
WOW, I could not believe this when I read it. When I think of the money that could have been made off that 10,000 in 18 years, I could cry. No offense to you but WAAAAAAAAAAAAAAAAA. Good luck!
-- (UGH@aShame.com), October 17, 1999.
Treasury bonds are not dependent on the stock market; they ultimately depend on the US government. There is a market in which treasury bonds are traded, but it does not behave quite like the stock market for various reasons.
As long as the fund is invested directly in treasury bonds, and as long as the fund manager, in this case Charles Schwab, stays afloat, that fund should survive even a major stock market drop, IMHO.
As for penalties of getting out, you would need to ask Schwab.
-- Jerry B (firstname.lastname@example.org), October 17, 1999.
Hey ugh ,the money has only been invested for 5 yrs . From 10000 To 16500 is not bad for a conservative extremely low risk college fund. Hindsight is always 20-20. I think Preparing should buy physical gold and silver as a store of value and possibly huge capital gains. If y2k comes with few problems sell it back and reinvest conventionally.
-- Harvey Wilson (email@example.com), October 17, 1999.
Treasury bonds, notes and bills are not linked to the stock market in any way. They are all backed by the full faith and credit of the US Govt. I guess it is possible for our Govt to fail, but it has never reneged on its debt so far. Govt debt was even paid in the Depression of the 30's. If the Govt fails this time, it will be the last debtor to go. You would be hard-pressed to find a financial advisor who would deny that they are absolutely the safest debt in the world.
There are differences between bonds, notes and bills. Bills are issued with a due date of one year or less. Notes and bonds are issued for longer maturities but you can find some around whose longer maturities become due in less than one year.
Bills are very liquid and you can get fairer prices on them than on the other two. Bills can be purchased from the Treasury or in a brokerage account. Bills are also available in the form of money market funds but you must be sure the funds invest only in Treasury Bills. If you opt for bills, I suggest you buy them yourself and not go to money market funds.
You are obviously looking for the most security, so bills are probably the best option for you. Given the maximum 1-year maturity, they will also give you the chance to assess the impact of Y2K when the bill matures, and you would then be free to take a different investment approach.
Bills, bonds and notes can each be sold on the open market at any time the market is open. This is a nice feature should you need the money before maturity.
There is a $10,000 minimum purchase requirement, but that should not be a problem to you. Another thing, since your child is 5 years old, the resulting interest income will be taxable at your federal tax rate.
Please feel free to e-mail me with more specific questions. Good luck.
-- mike (maples @voy.net), October 17, 1999.
Treasury Bills are not connected to the market in any way.If in fact the Treasuries 'default' or stop carrying any value (highly unlikely) then everything goes with it, including your cash and checking accounts. you simply have to "trust" something in this type of environment, and Treasuries are probably the "safest" place for your childs Education funding.
-- Keepon (firstname.lastname@example.org), October 17, 1999.
Treasury notes not linked to the market? How is it then that T-bond prices and the corresponding interest rates fluctuate as the market rises and falls? The bidders at Treasury auctions are in many cases heavy market players, who move back and forth between T-notes and equities. They must have their reasons for doing so.
-- Tom Carey (email@example.com), October 17, 1999.
>> Treasury notes not linked to the market? How is it then that T-bond prices and the corresponding interest rates fluctuate as the market rises and falls? <<
There is a difference between the face value of a T-Bill or a Treasury Bond and the secondary market price. The face value is backed by the issuer, the U.S. Treasury. The secondary market is a reseller's market. The resale price fluctuates from minute to minute. The face value is as good as the "full faith and credit" of the USA government.
If interest rates are falling the resale value of a "relatively" high face value rises to compensate for the lower face value of more recent issues. After all, a bond that was issued last year that pays 10% earns more than the bond issued today that earns 8%.
As interest rates rise, the resale value falls. Obviously, if I can buy today's bond and get 10%, then why pay as much for yesterday's bond that only pays 8%?? The price of the 8% bond is adjusted to pay as much over it's remaining life as the 10% bond issued today.
If you choose not to sell a bond or T-Bill, then the resale price has no bearing on how much you make over the life of the bill or bond.
-- Brian McLaughlin (firstname.lastname@example.org), October 18, 1999.
This is pretty sad.
The dollar is toilet paper money - sad but true.
99% haven't realised it yet, but they will...
What good is it having "safe" money in a currency that is tanking as we speak...
Think about it...
Buy Gold now - preserve the value that 16.5 k will buy you now...
In five more years the t-bill will give you maybe 22k of acurrency which in todays terms may be worth -40/60%
i.e. the 22k you get will really be only 6-7K now???
protect her education!!!
-- Andy (2000EOD@prodigy.net), October 18, 1999.