These days, mutual funds, annuities and part-time work are three of the most common types of retirement income. In past years, not so long ago, another kind of investment was often counted on for the retirement years: government bonds.
What is a bond? When you buy a bond, you are in essence loaning money to an entity, such as to the government or a corporation. During the life of that bond, the issuer of the bond adds interest to it. So when the bond matures, you get back not only the face value – what you initially paid for it – but also the interest earned.
Bonds in general are considered safe investments, all the more so government bonds. They used to be a prime choice for those who wanted to avoid the stock market. But are they worth buying now?
Well, back in the 1980s, government bonds brought a ten percent return. If you put ten thousand dollars into bonds, and it matured ten years later, then you would end up with almost $26,000. Not too shabby. In fact, back then Vicki Robin and Joe Dominguez wrote a book entitled Your Money Or Your Life. It was about how to achieve financial independence by living frugally, and investing the money saved into government bonds.
A lot of people got on that program, and succeeded.
Ask them if government bonds are still their investment of choice, and most will probably say no. These days, you are lucky to get three percent interest on a government bond. Using the same numbers as the example above, but with only a three percent interest rate, you would end up with a whopping $13,400 at the end of ten years. Not exactly the quickest way to build wealth.
The other argument against government bonds is the fact that the government tends to be anything but responsible with money. With an ever-growing deficit and trillions of dollars being thrown at who-knows-what, one can both question the ethics and the financial wisdom of buying government bonds.
Yes, they are conservative. They will never go down in value. But there are much better places to invest your money.