Benefits and Risks of Investing In Government Securities

One of the benefits of government securities is that some of them don't pay state or local taxes. That means a higher return on security investment. US Treasury Notes, Bills and Bonds fall within this category. Zero coupon bonds are included too.

Unfortunately, TIPS have a limited advantage regarding taxes. Although they don't pay local or state taxes, they do pay federal taxes.

The main risk is the cost of opportunity. Since this kind of securities offer a very low risk, the interest rate is also lower than the ones offered by private entities. So, if you pursue this path, you may find yourself wondering a what if scenario

Why Are US Government Securities Such an Attractive Investment

The main reason is that they are backed up by the United States Government. Since the USA has demonstrated long periods of political stability along its history (the Civil War is the only major setback in more than 200 years of democracy), it has earned the trust of the financial community.

Caution. The US Government issues securities through it's agencies but you may find a concept known as government sponsored enterprises (GSE). Under this umbrella, these organizations issue securities which aren't backed up by the government, only sponsored. Floating Rate Bonds (FRB) are one of those papers; and two well known GSE's are the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).

So, if you are looking for a secure, low risk investment for your money, then this is the kind of financial instrument you should be looking for. As you may find through your research, the government index securities have a stupendous classification, unparalleled in all the world. Finally, as a word of advice, buy your government securities through out from a broker. They will orient you and give advice over which type of security you should acquire.