Should You Buy US Treasuries?
The one-year US T-Bill currently yields 5.1%. It's an attractive rate compared to the 1.15% the S&P 500 has returned over the past two years, and it's guaranteed. Stocks are volatile, interest rates are rising, the Ukraine War rages on, and China is a constant threat, so buying T-Bills sounds like an excellent investment choice. It seems like a no-brainer.
The current rate is the highest since 2007 and well above its 30-year average of 2.57%. If you invest $1 million in a one-year US T-Bill, you'll earn $51,000 annually at today's rate – not too shabby.
Let's explore reasons to buy a one-year US Treasury Bill.
- Buying a T-Bill makes sense if you need your money in one year or less, and it is a wise investment.
- You can earn more interest in a T-Bill than you can from your checking account, savings account, CD, or money market fund. If you are sitting on a large cash balance, buy a T-Bill.
- If you're worried about a stock market crash or a financial disaster, buy a T-Bill. The US Government guarantees a T-Bill and offers tax benefits if you live in a state with an income tax, and it's an excellent hedge for a stock portfolio.
Let's explore reasons not to buy a one-year US Treasury Bill.
- The current inflation rate is 6.41%, so you lose 1.31% annually.
- The T-Bill produced an average annual return of 1.12% over the past thirty years, while inflation averaged 2.67%, so your net yearly loss was 1.55%.
- Over the past thirty years, the S&P 500 has increased 811%, inflation 121%, and T-Bills 39%. The S&P 500 has outperformed the one-year T-Bill by 772% since 1990.
- Buy stocks if your time horizon is three to five years or more.
Consider buying a T-Bill if you need the money in one year or less, as a stock market hedge, or if you hold a significant cash position. A T-Bill can be part of a diversified portfolio, but it's a poor choice for creating generational wealth.
Despite the headline news and recent market turbulence, stocks are still the best investment for the long run.
Inflation is taxation without legislation. ~ Milton Friedman
February 25, 2023
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM's custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on your asset level.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren't suitable for every investor. Prices and yields are for today only and are subject to change without notice.