When investing money, we all want our investments to be safe and secure. But with many types of investments available, it can be difficult to know which are truly the safest options. In general, the safest investments are those that have very low risk of losing principal value. One investment that is considered extremely safe is U.S. Treasury securities. Let’s explore why U.S. Treasury securities are viewed as a very safe investment choice.
U.S. Treasury securities carry virtually no risk of default
U.S. Treasury securities, which include Treasury bills, notes, and bonds, are issued and backed by the federal government. As such, they carry essentially no risk of default, meaning the chance that the issuer will be unable to make payments. This makes Treasury securities far safer than corporate bonds, which do carry some degree of default risk. Investors see Treasuries as a safe haven, especially in times of market turbulence or recession.
U.S. Treasury securities have stable principal values
In addition to having very low credit risk, U.S. Treasury securities also benefit from highly stable principal values. Their prices do fluctuate with changes in interest rates and inflation, but experienced investors expect and account for this volatility. Large daily price swings are uncommon for Treasuries. Investors can feel confident that the market value of their Treasury investment is unlikely to drop significantly overnight.
U.S. Treasury securities provide liquidity
U.S. Treasury securities also offer investors excellent liquidity. They can easily be sold on the open market prior to maturity. This gives investors flexibility to access their principal if they need it. In contrast, some other safe investments like certificates of deposit impose penalties for early withdrawal. The liquidity of Treasuries makes them attractive as part of an emergency fund.
U.S. Treasury securities fit conservative portfolios
Because they offer stability and protect against losses, U.S. Treasury securities are appropriate for conservative investment portfolios. They provide ballast against riskier assets like stocks. While Treasuries offer fairly modest returns, their rock-solid safety makes them foundational holdings for many investors, especially those with short time horizons or approaching retirement.
With their extremely low credit risk, stable principal value, inherent liquidity, and conservative profile, U.S. Treasury securities are rightly considered among the safest possible investments. For these reasons, they are premier holdings for investors who prioritize protecting their capital above all else.