Buying Treasury bills - great choice for cash reserves

[disneysteve]

I've recently gotten into buying treasury bills. You can currently buy 12-18 month bills that are paying 2.0 to 2.3%. That's well above what similar duration CDs are paying. Treasuries are fully backed by the government. They are also tax-free on the state and local level but are subject to Federal taxes.

I've been slowly moving money out of our Ally account which pays 0.5% and moving into into laddered treasuries instead, having one mature every month to ensure good cash flow as I prep for retirement.

If you're looking for a place to boost the return on your cash, check them out. They are super easy to buy within most brokerage accounts. Even for terms as short as 3 months, you can beat that 0.5% money market account (0.7-0.8% for 3 months, 1.1% for 6 months, etc.).

[LivingAlmostLarge]

how do you buy them? how are you laddering them/

[disneysteve]

It's very easy. We're doing it in our Vanguard account. You pull up the chart showing interest rate for each duration, click on the duration you want, and get a list of individual bonds or CDs. Pick the one you want and put in the buy order.

[james.hendrickson]

how do you buy them? how are you laddering them/

Living - most Americans can buy them directly through the US Federal government's website.

That is here => treasurydirect.gov. You need to have a US social security number, and meet one of the following criteria:

• United States citizen, whether you live in the U.S. or abroad
• United States resident
• Civilian employee of the United States, no matter where you live

If you a non-citizen you may be able to access them through a commercial brokerage.

[kork13]

DS, don't the treasuries require certain dollar amounts to purchase them? Like $10k or $50k or something like that? You can't purchase them in any random amount, can you?

[disneysteve]

Living - most Americans can buy them directly through the US Federal government's website.

That's to buy new issues at auction. If you want to buy them on the secondary market, your brokerage is the place to go: Vanguard, Schwab, Fidelity, etc.

[disneysteve]

DS, don't the treasuries require certain dollar amounts to purchase them? Like $10k or $50k or something like that? You can't purchase them in any random amount, can you?

$1,000 increments, so not a high bar for most of us. I've started building a ladder with $5,000/month. I don't want any duration longer than 18 months and really closer to 12. Right now I'm out to 7/23 so I'll wait a month and then probably buy one maturing 8/23.

[james.hendrickson]

That's to buy new issues at auction. If you want to buy them on the secondary market, your brokerage is the place to go: Vanguard, Schwab, Fidelity, etc.

Correct, TY, Disneysteve.

[kork13]

Honestly, doing something like that is interesting... But I have no idea how to evaluate individual bonds like that. The bid/ask mechanics, coupon, yield to worst/maturity, etc. I have alot to learn before I really start playing with that stuff.

[rerod]

I got out of a taxable vanguard total bond index fund (vbtlx) in march 2020.. I was using it as a high interest bank account for money set aside for a new house or in other words, the wrong reason.. That money is now in the vanguard treasury money market fund (vusxx) making practically nothing, but safe instead of loosing 12% since then..

Would treasury bills be a better option? Is it just as safe as vusxx?

[james.hendrickson]

I got out of a taxable vanguard total bond index fund (vbtlx) in march 2020.. I was using it as a high interest bank account for money set aside for a new house or in other words, the wrong reason.. That money is now in the vanguard treasury money market fund (vusxx) making practically nothing, but safe instead of loosing 12% since then..

Would treasury bills be a better option? Is it just as safe as vusxx?

For me - I don't know much about getting individual bonds, so its a better choice for me to buy a managed bond fund. Managed funds have the advantage of professional management that will let them mitigate the impact of interest rate changes.

[disneysteve]

I got out of a taxable vanguard total bond index fund (vbtlx) in march 2020.. I was using it as a high interest bank account for money set aside for a new house or in other words, the wrong reason.. That money is now in the vanguard treasury money market fund (vusxx) making practically nothing, but safe instead of loosing 12% since then..

Would treasury bills be a better option? Is it just as safe as vusxx?

Treasury bills are 100% safe but they aren't as liquid as a money market fund. VUSXX is only paying 0.24% though. if you need total liquidity, you could move it to Ally or Capital One and earn 0.5%, double what you're getting now.

What's your time line? When will you need the money? I just looked and treasuries maturing 7/28/22 are paying 0.737 and the longer out you go from that, the higher the rate. So if you are sure you won't need the money for at least 3 months, treasuries would definitely be better than VUSXX. Heck there are ones maturing 5/31/22 that are paying more than you're making in that fund.

[rerod]

Time line? I wanted to be breaking ground on my retirement home soon, but I still have 6 years until I'm 63. If lumber and demand dropped back to sane levels, Id be talking to a contractor now.. So its a guess of if or when this might happen.

[disneysteve]

Time line? I wanted to be breaking ground on my retirement home soon, but I still have 6 years until I'm 63. If lumber and demand dropped back to sane levels, Id be talking to a contractor now.. So its a guess of if or when this might happen.

Not knowing when you'll need the money makes it tough to choose an investment route. In that case, I'd stick with a high yield money market fund like Ally. Leaving it at Vanguard earning 0.24% seems pointless.

[corn18]

I could build a 10 year bond ladder right now and earn 2.75%. That is more than my 30 year fixed rate mortgage @ 2.25%.