Are Long-Term Bonds Right for You?

The 30-year bond has made a comeback, but individual investors might be better off picking bonds their own size.
Magazine Contributor
2 min read

This story appears in the June 2006 issue of Entrepreneur. Subscribe »

The decision by the federal government earlier this year to reintroduce the 30-year Treasury bond generated excitement at some mutual funds, insurance companies and other institutional investors. The financial press responded with sweaty-palm coverage about how pent-up demand drove long-bond bidding at the February auction, the first since 2001. And another auction is coming in August. But small-fry investors don't need to worry too much about it all.

Long bonds were never especially popular with individual investors. That's not likely to change now, since short-term interest rates are paying bond investors about as much as long-term rates. If you can gain as much from a 10-year note as a 30-year bond, why lock up your money for longer? For some institutional investors, there are perfectly rational reasons. A pension fund manager, for instance, might want to match assets to liabilities that are drawn out over decades. But time is more likely the enemy of individual investors, as inflation eats into the long-term fixed interest rate on their long bonds.

If you want an investment backed by the full faith and credit of the U.S. government, consider other ways to get it. Treasury bills and notes are available for periods ranging from four weeks to 10 years. And Treasury inflation-protected securities, or TIPS, adjust every six months based on the Consumer Price Index and can be bought in maturities from five to 20 years. As long as you're willing to invest in $1,000 increments, the various Treasury products are easy to get through the government's Legacy Treasury Direct program without the fuss and muss of a broker.

Income-oriented investors might also be interested in municipal bonds, which can be a good option if you have at least $100,000 to throw into the pot to create some diversification. Bond funds are an even simpler option: Many pay interest monthly rather than semiannually or annually, which makes cash-flow management easier. And good, low-cost funds are available in increments other than $1,000.

The bottom line: The long bond is back, but don't ask me to invest in one.

Scott Bernard Nelson is a newspaper editor and freelance writer in Portland, Oregon.
More from Entrepreneur
Our Franchise Advisors are here to help you throughout the entire process of building your franchise organization!
  1. Schedule a FREE one-on-one session with a Franchise Advisor
  2. Choose one of our programs that matches your needs, budget, and timeline
  3. Launch your new franchise organization
Make sure you’re covered if an employee gets injured at work by
  • Providing us with basic information about your business
  • Verifying details about your business with one of our specialists
  • Speaking with an agent who is specifically suited to insure your business
Try a risk-free trial of Entrepreneur’s BIZ PLANNING PLUS powered by LivePlan for 60 days:
  • Get step-by-step guidance for writing your plan
  • Gain inspiration from 500+ sample plans
  • Utilize business and legal templates
  • And much more

Latest on Entrepreneur