Hello, tigers!
In our last session, I discussed with you the pros and cons of investing in US treasuries, and today we're going to look at how to choose US treasuries as well as some simple US treasury investment strategies.
I. Two common product types of US treasuries
If you want to invest in US treasuries, what product types can you choose? For the average investor, there are two common types of treasury products: US treasuries and U.S. Treasury ETFs.
US treasuries
There are many advantages of investing in US treasuries, such as:
(1) Low credit risk
US treasuries are issued by the US government and are considered to be bonds with no risk of default. The US government has an extremely high repayment capacity, so you don't have to worry about defaulting on your bonds. In addition, there has never been a default since the issuance of US treasuries.
(2) High liquidity
The US treasury market is one of the largest bond markets in the world and has excellent liquidity. This means you can buy and sell US treasuries more easily without worrying about high transaction costs.
(3) High market transparency
The US treasury market is very transparent, and you can easily access information about Treasuries, including prices, interest rates, and maturity dates on the Tiger Trade app.
US treasuries ETFs
Apart from individual bonds, US treasuries Exchange-Traded Funds (ETFs) are also suitable for novice investors.
Firstly, US treasuries ETFs are open-end funds that invest in various types of bonds. Unlike mutual funds, you can trade them freely like stocks.
U.S. Treasury Bond ETFs offer several advantages:
（1） Diversified Investment: U.S. Treasury Bond ETFs typically include various bonds with different types and maturities, covering a range from short-term to long-term and from Treasury bills to inflation-protected securities. This diversity helps to spread risk and reduce the impact of the default risk of specific bonds.
（2）Convenient Trading: Purchasing and selling U.S. Treasury Bond ETFs is more convenient than holding individual bonds. You can find suitable U.S. Treasury Bond ETFs on the Tiger Trade App and trade quickly.
（3）Lower Entry Barrier: Buying individual bonds often requires the purchase of the entire bond, which may have a high face value, such as $1,000. In comparison, investing in U.S. Treasury Bond ETFs can be done with lower funds, and you can choose the number of shares based on your financial situation.
II. Simple US treasuries investment strategies
After understanding how to choose the right U.S. Treasury Bond product, let's delve into two straightforward investment strategies for U.S. treasuries.
Buy and hold strategy
Let's start with the simplest "buy and hold" strategy. This is a relatively traditional bond investment strategy, which operates by purchasing bonds and holding them to maturity.
This strategy focuses on the following areas:
(1) Obtaining Fixed Interest Income: Investments, on the other hand, usually earn fixed interest income after purchasing bonds. These interest incomes provide a stable cash flow and are suitable for investors who are looking for a stable income, such as those who have retired.
(2) Look for principal recovery: By the maturity date of the bond, the issuer will redeem the bond at face value and return the principal amount of the investor's original investment. This means that if held to maturity, you will recoup the principal amount invested, unless the bond defaults.
(3) Lower Risk Appetite: Bonds are usually lower risk compared to other investment classes and the payment of principal at maturity on bonds is usually highly predictable.
(4) Simplified investing: This strategy is relatively simple and does not require frequent trading decisions. You simply purchase the bond and then collect interest regularly and wait for the maturity date.
In summary, the buy-and-hold strategy is for investors who have long-term investment goals, seek stable income and are willing to accept some degree of price volatility.
Laddering portfolio strategy
A "laddered portfolio strategy" builds on the optimization of a buy-and-hold strategy and gives bond investing more purpose.
Simply put, a laddered portfolio strategy is a strategy that holds multiple bonds with different maturity dates, usually arranged in a ladder. This helps diversify interest rate risk and reinvestment risk. This is because when certain bonds mature, the investor can reinvest them based on current market rates.
This works by purchasing one-year, five-year, ten-year, and fifteen-year bonds all at once, with maturity dates corresponding to points in time when you may need to make large expenditures, which ensures liquidity and allows you to capture income.
This laddering strategy is ideal for investors who have different time horizons to plan for, such as: those who are planning to pay for their children's school fees in five years' time, to buy a new house in ten years' time, or to retire with a pension in fifteen years' time.
Using a laddering strategy also balances the need for short-term funds with long-term returns, but it cannot avoid market interest rate risk.
Well, that's the end of this lesson, we've covered the benefits of US treasuries and bond ETFs, and we've also learned about two simple bond investing strategies, did you understand all of them? In the next lesson, I will guide you in detail on how to buy U.S. Treasuries on the Tiger Trade app.
See you in the next lesson!