A family member recommended something called "government bonds". He said they are a safe investment.
Anyone know something about this?
Sure - government bonds are a safe investment, and every mutual fund group has a government bond fund offering. However, there are a number of issues:
It is just a super conservative bond fund - and, because there are no equities in it, it will act like a bond fund and you will get bond fund-like returns.
You need to understand how bonds work. When interest rates go up, bonds go down in value. That is because if you have a bond at, say 3% and the Fed raises rates to 4%, now the market value of that bond paying 3% needs to adjust to make it's coupon payments closer to 4% - so it will go fall to something like $75 per $100 of face value. In a government bond fund, you wouldn't necessarily care about the pricing of particular bonds, but, you do need to understand that in a rising interest rate environment, in a bond fund, your investment will lose money.
For some benchmarks, Fidelity's Government Bond funds have returned an annual rate of between 5% and 6% over the past 10 years. Over the past 3 years, only 1%.
Remember, as with any investment - it's all about risk vs. reward. You choose low risk with a government bond/fund, you are going to have lower returns - which may not keep pace with what you are saving for.
[This message has been edited by rsinj (edited June 04, 2006).]