Treasury securities offer investors a sensible option They're a good place to put stock profits


NEW YORK -- What if the doomsayers are right and the stock market is ready to plunge after rallying all year?

Individual investors may consider shifting some of their stock gains into U.S. government securities -- the safest bets around. "Selling some of your winnings and buying Treasuries now makes sense -- the stock market isn't going to the moon," said hTC Lew Altfest, who runs the New York-based financial consulting firm L. J. Altfest & Co. Inc.

Treasury securities are viewed as safe bets for two reasons. First, the U.S. government has yet to miss an interest payment. Second, investors who buy debt securities such as the Treasury's bills, notes and bonds know in advance exactly how much they'll earn by holding them to maturity. Earnings will include the security's yield, which is determined by the difference between its face amount and purchase price, plus its annual "coupon" rate.

The cheapest way to buy the U.S. Treasury's securities is from the Treasury itself through its fiscal agent, the Federal Reserve. Since buying the government's securities from investment brokers incurs service charges of at least $35 a pop, "It's something I tell my investors to do all the time," said Mr. Altfest.

More important, though, is getting the same price that institutions pay for purchases of much larger amounts. That's a rare opportunity, since Wall Street typically charges the little guy more for the small blocs of securities they tend to buy.

According to Mr. Altfest, an investor seeking $10,000 of five-year notes now might buy them at a 5.5 percent yield, a quarter percentage point less than what's available to bulk buyers. That's the equivalent of paying a $117 surcharge to a broker.

That may explain why direct purchasing is gaining in popularity. About 1 million Americans buy government debt directly, a Treasury Department spokesman said. That's up from zero in 1986, when the program started.

Investors who plan to sell the securities before maturity might choose to buy through a brokerage firm, since those are the only institutions that can re-sell the investments before maturity. Government securities bought directly must be transferred to a brokerage account for sale into the secondary market.

Another reason to use a broker is to have more say in when the transaction occurs. Individuals, like bond firms that underwrite the government's $3.1 trillion of publicly traded debt, can buy directly from the Treasury only at regularly scheduled auctions.

The Treasury sells two- and five-year notes each month and three- and 10-year notes four times a year. Thirty-year bonds come to market twice a year. Notes and bonds, which make separate interest and principal payments, require a $1,000 minimum purchase.

Treasury bills, which have maturities of a year or less, are sold at weekly auctions at deep discounts from their value at maturity. Investors can buy Treasury bills direct in blocks as small $10,000, or as small as $5,000 for two-year notes.

To buy direct, investors must first set up accounts at the Federal Reserve, filling out the forms necessary to allow interest and principal payments to be transferred automatically to their bank accounts.

Treasury securities are recorded in book-entry form, which means they exist only as entries in computer memories and on Fed statements.

The service is free unless accounts have more than $100,000, in which case the Fed charges an annual fee of $25.

Investors pay for the securities by submitting checks to the Fed in person by noon the day of the auction or by sending cashiers' or certified checks to regional Fed banks, postmarked by midnight before auction day.

Direct buyers can be as much mavericks, who disdain delegating authority over their finances, as they are misers. "My broker doesn't know all my business, and I think that's healthy," said Billie Wesley Taylor, a 55-year-old high school teacher and Treasury investor in Kettering, Ohio.

Mr. Taylor has been buying Treasuries straight from the government since August 1987, when he decided against funneling $50,000 into the stock market months before its historic October plunge. "I just wanted to put a few dollars aside while I waited to see where the market was going," Mr. Taylor said.

At the end of this month, Mr. Taylor plans to retire on a $1.1 million nestegg he built up during years of studious investing. He has about 15 percent of his money invested in Treasuries, mostly bought from the government via the Cincinnati Fed.

It's a habit he's not about to give up. "The Fed's computerized system is bulletproof," Mr. Taylor said.

Where to call

Detailed recorded information on government securities is available from the Baltimore branch of the Federal Reserve Bank Richmond by calling 576-3500.

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