Time To Buy T-Bills?

Stocks, Bitcoin, and NFTs, are surging. The NASDAQ is up 41% since last March, Bitcoin soared 627%, and last week, the artist Beeple sold an NFT for $69 million. The economy is opening up, stimulus checks are coming, and investors are in growth mode. If everyone is making money buying stocks and other investments, why is it time to buy T-Bills? Let's find out.

T-Bills are the safest investment in the world, and they're guaranteed regardless of how much money you invest. If you want safety and liquidity, look no further. However, you pay the price for allocating capital to T-Bills. The current rate for a one-month T-Bill is .03%. If you extend the maturity to one-year, the rate jumps to .09%. Relative to everything, the interest rates are anemic.

In 1981, the yield on the one-month T-Bills was 14.7%. It has since fallen 99.79%. Since 1926, they averaged 3.3% per year, so too has inflation.  After subtracting inflation, your net return is near zero.

(Chart: Macrotrends, 1-year Treasury Rate 54-year historical chart)

Berkshire Hathaway, led by Warren Buffett and Charlie Munger, owned more than $135 billion worth of T-Bills at the end of last year.[1] They use them to fund their corporate operations and make strategic acquisitions. Mr. Buffett said, "If a $100 billion deal came along that [Vice Chairman Charlie Munger] and I really liked, we'd get it done."[2] The duo buys about $4 billion worth of government securities weekly.

If you're still reading, here are a few reasons to buy T-Bills near historical lows while other investments perform well (and better) than short-term government bonds.

1. If you're anxious about rising interest rates, then T-Bills are an excellent choice. They are auctioned weekly with maturities of 4-, 8-, 13-, 26-, or 52-weeks. It's possible to build a short-term ladder with bills expiring weekly. If interest rates rise, you'll reinvest your proceeds at higher rates without suffering a principal loss. T-Bills have never had a year where they posted negative returns.
2. If you're worried about a stock market correction, T-Bills will protect a portion of your account.  Transferring 40% to bonds from an all-equity portfolio lowered your risk by 37%. T-Bills are a hedge against falling stocks because they're negatively correlated. During the Tech Wreck in 2000, T-Bills outperformed stocks for three years in a row. When stocks fell 4.38% in 2018, T-Bills rose by 1.81%. Last March, the S&P 500 lost 12.35%, T-Bills remained firm at .12%.[3]
3. If you hold a significant cash position at your bank, T-Bills can offer you more safety. T-Bills are insured dollar for dollar, regardless of the amount. Rather than transferring money between several banks to make sure you qualify for FDIC insurance, you can purchase one T-Bill.
4. If you need to buy something in a year or less, T-Bills offer liquidity not found in other fixed-income investments. Stocks are volatile and can suffer significant losses. If you're going to buy a new home for $1 million, purchase a T-Bill to guarantee that the funds will be there when you need them most.  

T-Bills are purchased for safety, not for growth. You will not create generational wealth owning short-term government investments. It's not possible. Low rates and inflation are a poor mixture for growth. However, if you need safe investments with a hedge, the T-Bill is your answer.

Bye, bye, and buy bonds.

"Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas." ~ Paul Samuelson

March 15, 2021

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 the level of your assets.

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.