Question

An investor is currently holding income bonds, preferred stocks, subordinated debentures, and u.s. treasury bonds. which of these securities traditionally is considered to have the least risk?

Answer 1

Answer: U.S Treasury bonds

One of the main risks of investing is the risk of not getting back the amount invested. This risk is called default risk.

Income bonds, preferred stocks and subordinated debentures have default risk since there is no guarantee by the issuing companies that they will repay the principal, and interest or preferred dividends, as the case may be.

However, if an investor holds a U.S treasury bonds until maturity, the government gives a guarantee on the interest payment and principal amount. Hence the U.S treasury bonds are traditionally considered to have the least risk.

However, even U.S. treasury bonds are sensitive to inflation and interest rates.