Good morning. I received a question yesterday, which I feel the answer I gave could help others.
The question was “If you were to purchase 2-year and 5-year treasuries to enjoy the dividend (he meant yield), would you purchase these directly from the US government - how would one do this? Or, would you buy ETFs like SHY or IEI or IEF?”
A: Prefacing this with the usual disclaimer: this is not financial advice. I also don’t know which broker you use (nor do I want to know).
One of my brokers, Charles Schwab, allows customers to purchase individual U.S. Treasuries and has a video explaining how:
https://www.schwab.com/content/how-to-buy-treasuries
Depending on your broker, I’d suggest calling customer service and explaining that you’re not looking to transact immediately. You simply want instructions on how to search for and purchase 2-, 5-, and 10-year Treasury notes.
Personally, if my objective were to earn interest and hold U.S. Treasuries to maturity, I’d favor buying the individual Treasuries over ETFs.
The distinction is that an individual Treasury has a defined maturity date and repayment of face value by the U.S. government, assuming no default. A conventional Treasury ETF continually holds a portfolio of bonds and doesn’t offer that same fixed maturity or guaranteed return of your original investment.
Hope that helps.
NYA
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