Although the bond market in the U.S. is more than twice the size of the stock market, many individuals are not familiar with investing in bonds. Those that are familiar with it often opt to invest in bond funds, but unfortunately, this usually results in incurring commission charges and ongoing annual fees that can be avoided.

With a little bit of homework and knowledge, it is VERY possible for investors to manage this portion of their portfolio and avoid the fees and lack of control. In prior articles, we have discussed different strategies for investing in bonds in today’s rising interest rate environment. Here, we will discuss some of the mechanics to investing for the individual investor.

Treasurydirect.gov

The U.S. Treasury market is the largest and most liquid of the bond markets in the world.  Investors globally are attracted to it for the income and safety if affords. The US Treasury offers investments as short as 1 month to as long as 30 years. Thanks to a program entitled Treasury Direct, individual investors are afforded the opportunity to buy Treasury Bills, Notes and Bonds directly from the Treasury Department when they are newly issued. The benefits of doing so include:

  • NO commissions or fees
  • A schedule of regular offerings allowing for a variety of different maturity options
  • Ease: Investors can have the money automatically deducted from bank accounts to purchase the securities
  • Investment denominations often as low as $100
  • Individual investors receive the exact same price/yield as the largest institutional investors, with no additional fees or ‘mark-up’
  • The Federal Reserve Bank offers free custodial services (meaning they hold your securities for you), charging no fees or need for a brokerage account

    • It is important to note, that should the investor choose to liquidate their Treasury Securities before maturity, they must be transferred out of the Treasury Direct program, put on deposit at a broker/dealer and liquidated in the market. This could potentially incur market risk, as well as fees or commissions applied by the broker which could result in a loss. If, however, you are a traditional buy and hold investor, the securities can be kept on deposit within the Treasury Direct program, incurring no fees or expenses.

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