401k Me!

Finally.  Finally I am actively investing again.  When I switched jobs, I had to wait one year before I could start contributing to my 401k.  That one year has passed, and as of yesterday, I am putting money into the stock market.

Why am I so excited?  After all, the market is going down and people are running from financial stocks like rats from a sinking ship.  I love investing as the market is going down.  The market will come back up.  It will also go back down, eventually.  However, over the next 30+ years I have until I retire, there is a much better chance the market will continue to rise.  There will be downturns, but the upswings always go higher and higher.

So, I am buying on sale right now.  The last time I got access to a self-invested retirement fund, the tech bubble was popping, circa August 2001.  The Dow Jones had just hit 9000, and I jumped into the market.  After all, how much lower could it go?  Well, it ended up going a bit lower, but by the end of the year I had a 20% return with a 32% return the year after.  I’m hoping for a repeat performance this time around as well.

I am going to keep riding out the market and betting on the long-term, not short-term, success of the American economy

Investing With The U.S. Treasury

Everyone is familiar with savings accounts, CDs, and the idea of investing in stocks and bonds.  (I’ll get into stocks and bonds in a later post.)  However, not as many people are familiar with Treasury bonds, notes and bills.  Here’s a quick primer on them.

Treasury Bills

Treasury bills are short-term investments, and by short-term I mean from 2-weeks to 26-weeks.  The way they work is very simple.  The U.S. Government says, for example, “If you give us $99 today, we’ll give you $100 in four weeks.”  That would be a 1.01% return for four weeks of loaning money to the government.  They usually don’t return that much money, but it is an example.  One benefit to Treasury bills is that the profit you make from them is not subject to sate or local income tax, although they are subject to federal income tax.

Treasury Notes

Treasury notes allow the government to rent your money.  They pay you interest every 6 months on the amount you loan the government.  At the end of the note, they give you all the money you loaned back.  For example, if you bought $5,000 of 10-year notes, at a 2% interest rate, every 6 months, the U.S. Treasury would pay you $500 of interest and after 10 years, they would give you your $5,000 back.  Again, the interest is subject to federal income tax but not state or local income tax.

Treasury Bonds

Treasury bonds, not to be confused with savings bonds are just long-term notes, usually 20-30 years in length.

Since they are backed by the U.S. government, Treasury products are considered extremely safe.  Because of that, they do not give as good of a return on your investment as a lot of other products.  However, that security is their biggest benefit.  They are the closest to a sure bet you can find in the financial arena.

I’ll go into U.S.savings bonds and inflation-protected investments in another post since this one is probably making someone’s eyes cross already.