Resolved to have a safe and sane new year? Try U.S. Treasury securities. They've become the nation's leading manufactured product, being -- as they are -- the mechanism by which the government raises money to cover its deficits. One might even say it's your patriotic duty to buy some of Ronald Reagan's debt.
Followers of the Dow Theory (which tries to call turns in the stock market) have another reason to buy. Right now, the theory says we're in a primary bear market in stocks and that any rallies will prove to be heartbreakers.
Treasuries are a splendid port in a storm. A prominent interpreter of the Dow Theory, Richard Russell, says that from the time the theory signals a bear market -- which it did last October -- until it calls the return of the bull, investors always make money by parking their assets in one-year Treasury bills. He adds, however, that this is true only if the yield on one-year bills is at least 4.5 percent. Last week it was 7.2 percent.
But you don't have to be a pessimist to love Treasuries. They're equally good for optimists who -- burned by Black Monday -- have decided that, even though they love stocks, a larger portion of their money should be kept in investments that are absolutely safe.
The interest on Treasuries is subject to federal tax, but exempt from state and local taxes.
Short-term T-bills, maturing in a year or less, are a true security blanket. They pay less income than longer-term securities, but are less vulnerable to unexpected outbreaks of inflation. They mature quickly, so you can readily reinvest at higher rates. Minimum investment: $10,000.
Treasury notes, maturing in up to 10 years, give you more income. If you stick with notes in the four-year range (recent yield: 8.3 percent), you still hold your inflation risk to a limited period. Minimum investment: $5,000 for notes of four years or less; $1,000 for longer notes.
Treasury bonds, maturing in up to 30 years, are for those who believe that deflation is so solidly upon us that interest rates will trend flat to down for a long time. Current yield: 9 percent, on a minimum investment of $1,000.
Bonds are also first choice for people who speculate on falling interest rates. When rates decline, the market value of bonds goes up -- and long-term bonds rise the most of all.
You can buy Treasury securities, at no fee, directly from the Federal Reserve branch nearest you. (Ask your own bank for the Fed bank's address.)
The Fed has information packets it sends to investors. Buyers of new issues no longer get a physical, engraved security. A purchase is just a blip on the computer, so it's essential that you keep good records. The Treasury sends interest payments directly to your bank account.
Direct purchase is best for people who expect to hold their securities until maturity, which is usually the case for short- and intermediate-term buyers. The Fed will repay your investment when the time is up, or roll it into another security.
But if you think you will sell before maturity, buy through a stockbroker or commercial bank. Only they can sell Treasury securities prior to their due dates, and it can be time-consuming to move the record of your securities ownership from the Fed to a broker. The interest is paid through the broker, who deposits it in your brokerage account.
If your broker goes out of business, your Treasuries should be safe. "They are the individual's property, held in custody by the brokerage house," David Liebschutz of the Bureau of Public Debt said. But again, keep good records.
The fee for placing the order ranges from $25 to $50 -- a pittance on large investments but a significant bite out of small ones.
You can also buy Treasuries through mutual funds that invest in them. Treasury-only money-market mutual funds keep your principal safe and float your interest rate. (The average for the year ending Nov. 30: 5.9 percent, according to Lipper Analytical Services.)
With funds that invest in bonds, however, you will gain and lose principal, as the market fluctuates. For a guarantee that you'll always get your original investment back, pick a note or bond rather than a fund.