In these uncertain times, many of my clients want to play it safe with their money, but still want it to grow to meet their future needs and keep up with inflation. They're not alone in wanting this, and that's why I'm sharing a simple 2-step strategy that my clients love. It's a low-risk strategy that grows your money without losing your initial investment.
The best part? It's a strategy you can implement yourself.
Overview
Here's an overview of the 2-step strategy:
Step 1
Purchase a US treasury security (e.g. 5 year note, 10 year note, 30 year bond, etc.) from TreasuryDirect or through your brokerage firm.
Step 2
Invest the interest you are paid every 6 months (typical frequency) into a Total Market index ETF (Exchange Traded Fund) or S&P 500 index ETF.
Why It Works
Treasury securities are backed by the full faith of the US government and guarantee the return of your initial investment at the term end/maturity (5, 10, 30 years, etc.)
Interest payments are reliable and predictable, and at current yields of ~5% , very attractive! (Note: interest payments are subject to federal tax but may be exempt from state and local tax).
Investing the interest in a Total Market index fund or S&P 500 index fund supercharges your potential* growth ..... (The S&P 500 has had an annualized return of ~8% the past 20 years, and ~11% the past 40 years.) *Past performance is not an indicator of future growth.
The Outcome
Limit your investment risk to the interest payments, not your initial investment.
Give your money the opportunity to grow substantially over time.
Take advantage of the current high yields and interest rates.
Confidence and peace of mind that you are putting your money to work for you.
Example
Here's an example to illustrate the strategy:
Kemi has a lump sum of $10,000 that she would love to grow and gift to her 5 year old son when he turns 25. She decides to purchase a 20 year Treasury bond with a yield of 5%. Every 6 months, for the next 20 years, she receives interest payments of $250. She immediately invests it in an S&P 500 index ETF like VOO or SPY.
Assuming an 8% annualized return on the S&P 500, by the time Kemi's son is 25, her initial $10,000 would have grown to $32,800: her initial $10,000 (which is returned to her intact) plus $22,800 =the growth of the annual $500 interest payments she invested.
Imagine what a gift of $32,800 could mean to Kemi's 25-year-old son: a down payment on a house, pay off debt or put a significant dent in it, or even purchase a car. It would be a gift with meaningful impact on his life.
As this example illustrates, an important factor in any successful investing strategy is TIME. The more of it you have, the higher your potential growth.
If Kemi had purchased a 30-year bond with a similar yield and followed the same process, her $10,000 initial investment would grow to a little more than $66,000!
How to Get Started
Explore the available terms and yields, and select the Treasury Security that fits your needs.
Open a TreasuryDirect account to purchase Treasury Securities directly from the government or open a brokerage account to purchase through a brokerage firm.
Set up a recurring transfer or deposit of your interest payments into the brokerage account you intend to use to invest in a Total Market index fund or S&P 500 index fund. (Bonus tip: it's easier if the brokerage account you use to by the Treasury Security is the same as the one you use to invest in the index fund,)
Set up a recurring investment into the index ETF of your choice. Some brokerage firms do not support recurring or automatic investing, so you may need to set a reminder to manually purchase the ETF.
Sit back and watch your money grow over time!
This 2=step strategy is simple to implement on your own, but if you prefer the guidance of a financial professional, take advantage of a complimentary session to get your questions answered.