T-Bills: This Will Shock You [Worst Investment?]
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- čas přidán 25. 07. 2024
- Do T-Bills have a role in your portfolio? A recent study suggests they are the worst investment.
#TBills #TreasuryBills
--- Follow-up Videos:
Investment Policy Statement [6 Step Investment Strategy]: • Investment Policy Stat...
Asset Allocation Explained [Modern Portfolio Theory]: • Asset Allocation Expla...
Investment Risk Tolerance Explained: • Investment Risk Tolera...
Three-Fund Portfolio [The BEST Portfolio!]: • Three-Fund Portfolio [...
--- Sources:
Long-Horizon Losses in Stocks, Bonds, and Bills: Evidence from a Broad Sample of Developed Markets: papers.ssrn.com/sol3/papers.c...
rationalreminder.ca/podcast/224
fyi.moneyguy.com/p/how-quickl...
-- Outline
00:00 Intro
00:20 T-Bills Overview
01:45 T-Bills Cons
04:25 T-Bill & Stock Return Studies
07:13 Role of T-Bills in a Portfolio
---
Disclaimer: I am not a financial advisor. My videos are for educational purposes and are my opinions. You should seek advice from a professional advisor or perform your own research. There is no guarantee you will be successful following my opinions.
Thanks for watching! Here are some follow-up videos:
Investment Policy Statement [6 Step Investment Strategy]: czcams.com/video/_VCzrkGsBf8/video.html
Asset Allocation Explained [Modern Portfolio Theory]: czcams.com/video/QTgvWPAihIc/video.html
Investment Risk Tolerance Explained: czcams.com/video/upI3bpHXAdY/video.html
Three-Fund Portfolio [The BEST Portfolio!]: czcams.com/video/R81Z-obeB3s/video.html
Well done! Look forward to watching more of your videos.
Thank you very much!
Just found your channel and really appreciating how informative it is! 👍🏼
Welcome, I'm glad you find it useful! 😀
Great content. I love these. Every investment mistake I've ever made was because I deviated from my original plan.
Thanks Scott! Sticking to the plan is important! ;)
If you are over 60 and really understand how shaky many regional banks are today as well as the number "zombie companies" inundating the stock exchanges,😊 T-bills look pretty good.
They are definitely looking fairly attractive right now for shorter-term needs. For long-term, I still prefer to invest in businesses 😀
Great content. Subscribed. Space kind of crowded with content. Think about where you can be unique. Perhaps your story. You are an expert on you.
Thanks for your support & the suggestion Joe. I also appreciate your content!
maybe is not relevant, but what about having a large amount T-bonds, and taking a margin loan to cover short term needs if you need them? if you could lock in a 4% return over 30 years, but only need to take a margin out every couple of years. sounds like a Win overall.
Generally, I don't think I would find it worth the hassle. In some situations, it might make sense. I would be concerned about how frequent margin is needed, what the margin rate is, and being able to survive a margin call.
1929 stock market crash took 25 years to get back to where it was.
Good point. If you kept investing during/after the crash, in 1931 & 1932, you saw the highest return from stocks in the past 100 years in 1933 at 54.2%. With the downside, historically there has been more upside.
Thank you, Nick, you're spot on. I like your calm simple approach no hype just facts. Yes, I'm guilty of sitting on cash over 10% cash in taxable & deferred. However, I'm retired & planning to start spending down at 60 y/0.
You’re welcome, thanks!
So fixed income recommendations from my fidelity experts would have cost you a 18% loss in your retirement account. Cash and t bills look good in comparison. There are no experts just clueless people with bold opinions. Trust your instincts not so called experts.
@@clarityquester1653 Still we can sleep better.
Money you need right now in a t-bill is not a con, it's a bad decision! You should always have your immediate need, 3 - 6 months in cash, nothing else.
I mostly agree. If you have some of the 3-6 months of cash in 4-week t-bills, it's nearly risk free. I think it can be fine as long as you can meet cash flow needs (ie: 1-2 months cash + t-bills that mature in < 1 month).
You can sell your tbills.
I think you are talking about an emergency fund. Everything after that should be invested.
Love this video and your prior ones. It’s a breath of fresh air in a sea of insanity. I have a plan, I just need to stick with it. The good news is my ee bonds (which are worth less than nothing for 20 years), and my I bonds (which are worth exactly nothing for 20 years) have remained steady when I bought them in Sept 2021 when everything else has crashed. So I can sell them (at a small penalty), put them in my standard allocation, and be happy that my market timing worked out for once! And then slap myself and never do it again.
Thanks Christopher, I appreciate your support & I'm glad it worked out for you this time! 😀
Hi Nick, a friend was looking to get in touch for a project - what is the best way to get in touch?
You produce good content.
Thanks John!
👍
This video was great, keep up the good work
Thanks Kevin!
is the Par value of T-bills always $100? The price i see on CNBC for 10 years is $102 (12/11/2022). Is this the par value?
Hi Ayman, bonds are typically quotes using % of par value (it's more 100% vs $100). If you lookup specific bond issues, the price is drastically different for various issues, even ones maturing on the same day. My guess is the price quoted on CNBC is some kind of aggregate over all 10y bonds trading? I'm not sure how they quote that, but I would pay more attention to the yield and the price of a specific issue. I usually use the fidelity bond purchase page or www.wsj.com/market-data/bonds/treasuries when looking up prices.
Why are you hating on T-bills? Just say a person is better off if stocks over the long run.
I did mention situations when they can make sense. I was trying to remind people they will generally better in stocks long term, since many are avoiding the market & parking in cash/tbills due to volatility.
Run from sales on the stock market? LOL, because the stock market is a con game.
Good perspective - would this be the same regardless of whether this is a taxable account or rollover IRA account?
Thanks! The main differences are tax treatment and accessibility. Inside IRA you can defer the taxes until you withdrawal, but you can only access (without penalty) in retirement.
Hello Nick, I have a doubt. I am going to buy some bonds trough Interactive Brokers. I am US non-resident. Is there any US Withholding Tax when maturity? I mean I know notes and bonds, as they are paying every 6 months or so, or even dividends you have a US Withholding Tax of 30% or 15% depending if your country have a treaty with the US. But this T-Bills seems like you buy a stock and sell later, and I know in this case there's no US Withholding Tax.
Thank you in advance
How do you lose money in T Bills when you hold them to maturity?
The study I referenced was based on losing real value, which is inflation adjusted. Inflation is currently higher than the return of t-bills, so they are currently losing real value.
You could apply his answer to nearly anything right now. True inflation is like 15-20% so no matter where your money is, you’re “losing”. Cash, stocks, bonds, etc doesn’t matter. Even I Bonds are less. Buying treasuries provides a bit of relief to your cash losing value
17 weekk t bills pay 4.2% annualized. It's simply the best investment right now.
They're a good option for short-term liquidity needs.
It’s The Taxes I Don’t Like
@@nc9978 No state/local taxes, but you do have to pay federal taxes. Better than CDs.
@@TechDude56 - no state/local taxes, but you do have to pay federal taxes.
@@z-z-z-z Lol! That is what I said.
Locking up money for 4 weeks is not a big deal. Also, Fidelity makes the tax reporting automatic. Just import into tax software like TurboTax
Yea, Fidelity's ladder tool helps a bit too. I've thought about putting some of my emergency fund in t-bills, but haven't due to high tax rate & only carrying ~4 months of expenses. I can get ~3% FDIC with immediate access.
Isn’t any gain you make from investments taxable? Including the gains from a savings account ?
@@user-bm4sv5gb5f for sure
@@user-bm4sv5gb5f Yes, I could put maybe 1-2 months of my expenses (from emergency fund) in T-Bills, but my tax rate is around 40%. The ~1% extra from t-bills would only be 0.6% extra. I'd rather just get the 3% from my checking account & not deal with shuffling the cash around etc.
@@nickdoyle-achievefinancial2464 3% from your checking account? How so?
If you invested in the Dow in 1929 for the "long-term", you finally broke even in 1954.
Good point Tim, the 25-year period you mentioned had a long time to recover back to previous highs. Stocks dropped 90%. However, breaking even in 1954 suggests you invested all your money right at the top and didn't invest more while it was down. Long-term investors that kept to their strategy of continuously buying into their asset allocation would been buying at up to a 90% discount and benefited significantly from the recovery (10x gains from purchases around the bottom to previous highs).
@@smmasongt I agree. I went entirely cash in August, now mostly treasury bills, some gold, and a bit of real estate. Maybe back into equities next Summer. That's my guess. I hope you'll run your own race and not trust a stranger's judgement. Good Luck
Good luck with the market timing Tim & Shawn.
Government bonds have been the best asset this year. Going to cash and holding bills is a good strategy I think. Next year, whenever the fed finally starts cutting rates again, it will be time to sell your bills/notes, and go into equities. Timing the market this way might not be perfect but I can't see how holding through a bear market is better.
@@TheMountainBeyondTheWoods Time will tell. You may or may not get the timing correct on selling out and buying back in. Since I made this video, 3 weeks ago, my portfolio is up ~5%. Hopefully, you have some insight others don't or get lucky and buy back at a good time. If you get it wrong, it can cost a lot. Buy and hold guarantees you get the market return.
This is misrepresenting. First the title “is tbills the worst “. What’s worst? Buy stock and lose 10% vs money market paying ~2/3% vs short term bills paying 4% ?
Hi Phillip, This video mentions scenarios in which t-bills can be a good option. Worst is relative to each person's financial goals and timeline. For long-term investors, stocks have historically been better than t-bills. Since I made this video 4 weeks ago (Nov 5), the total world index (VTWAX) is up 8.9% compared to 0.33% earned 4-week t-bill. If you're keeping cash in t-bills to cover short term bills, great that's one of the scenarios I said makes sense. If you're just trying to market-time and sit on the sidelines, when do you get back in? Now? It's possible the bottom is already in, it's possible stocks will go lower. Nobody knows, but the data is clear that t-bills have been one of the worst asset classes for long-term investors. Surely that could change in the future, but I am betting on stocks long-term.
Why are you saying $997.18
So when you sell you get the 1000 back
So the profit is $2.81
This isn’t 3.6%
That’s 0.03%
Hi Chandler, here is a rough approximation of the math. Converting the 4 week rate to a yearly rate may be slightly different, but I do get around 3.6%.
4-week return: 1000 - 997.18 = 2.82
4-week %: 2.82 / 997.18 = 0.002827 (.283%)
4 week periods in 1 year: 52/4 = 13
~Annualized return: 0.283%*13= ~3.68%
So the question is should I invest in T-bills or not? Lol
Good question, it depends on your investment strategy and asset allocation 😀 Some of the reasons I think T-Bills can make sense in an asset allocation: retired and want some bonds in your portfolio to be safer from short-term movements, saving for expenses in the next year or two, or your bond strategy is to use shorter duration treasuries and take extra risk via equities (a strategy I discussed here: czcams.com/video/Al2DOtLS00Q/video.html).
With your cash yes. The 4 week T-bill is yielding almost 4% and you can auto-roll it in your Fidelity, Schwab, Vanguard, account when it matures. With interest rates rising almost every month in 2022, the four week T-bill is the best place to invest your cash!
@@garymcfadden2797thanks Gary
@@garymcfadden2797 Build a 13-week (4.553%) tbill ladder and get cash flow every month & auto re-invest. Initial wait period will be 91 days though.
Why do we need to beat the market in the first. Our job is to preserve the capital.
Good point Harikrishnan! I think aiming to get the market return is the best most of us can do :)
@@nickdoyle-achievefinancial2464 getting rich through investments is an inefficient way. Best approach is to follow your passion that creates value to others in a bigger market and use the instruments to preserve the capital against inflation. Thats all we need to do.