Investing for the Cheap and Timid

Not everyone has In-Cog-Nito’s tolerance for risk. For those of us not equipped with brass appurtenances, reducing investment risk is often a goal. To increase risk, including upside risk, you issue debt, either by buying on margin or selling short, which is really just borrowing shares of stock instead of cash. To reduce risk, you acquire debt. Here is one way to do it for free.

The highest-quality (least risky) debt to own is issued by the governments of prosperous countries like the USA. You can buy US Treasury bills, notes, and bonds directly from the Treasury without paying a broker by using their Treasury Direct program. After you fill out the initial form, the rest of your transactions can be done by phone or internet. The securities are held in registered (paperless) form, and interest payments and maturities are wired to your bank account. I have used this myself, and it is very convenient. You can also open your account at one of the twelve Federal Reserve branches.

The minimum investment is $10,000 for T-Bills (short-term) and $1,000 for long- and intermediate-term debt. The usual way to buy is at the regular auctions, so you get the same price as the big guys. You can also sell before maturity for a flat fee of $34, and receive the best available bid price.

If you want to get really fancy, you can use this to make a bond ladder, so you have debt maturing and being reinvested at regular intervals.

4 thoughts on “Investing for the Cheap and Timid”

  1. Great.

    1. The site does not specify if non US resident foreign nationals can open accounts. Can we?

    2. Is there a management fee?

    3. Is not this unfair competition to commercial brokers?

    4. Do other countries have similar services?

  2. Hi Jaime

    1. There is no legal barrier to a non-resident alien owning Treasury securities, but you need a US bank account to participate in this program. The IRS will issue a taxpayer identification number, if you need one. If you don’t have one yet, you’ll probably need one to open the bank account. One of my friends on an H1-B visa opened a couple of accounts while his application for permanent residence was being considered, figuring that if he had to go back to India, his money could stay here.

    One caution, though — you may be subject to tax withholding of up to 30%. Some countries have reciprocal treaties with the US that avoid or lessen this.

    2. There is no managment fee, other than whatever bank fees there might be.

    3. Hmm, Jaime, you haven’t deal much with full-service brokerages, have you? I wouldn’t worry too much about being unfair to them. Besides, there are also US corporations that sell their stock directly to the public without a broker, although you can use a broker anyway if you think you have too much money.

    4. I think the UK does have something similar — I started looking through the Bank of England’s website, but started having an unaccountable craving for warm beer and cold drizzle, so I had to stop. You can pick up where I left off here. I’m pretty sure that they issue both in pounds sterling and euros.

    There may be other countries with similar arrangements, but that’s really outside my area.

    Good luck


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