Buying Treasury bills - great choice for cash reserves

[disneysteve]

With higher bond yields the old 80/20 ratio of stocks to bonds might need to be revisited to maybe 70/30, 60/40, etc.

I’d be careful about that. Fundamentals haven’t changed just because rates have gone up. You still need stocks to beat inflation over time. Stocks had a rough 2022 and will continue to struggle in 2023 but that’s a normal part of the economic cycle. That doesn’t mean you should change your long term plan.

We are 60/40 but that’s by design and I’m semi-retired and pushing 60 years old. If I was still 50 or 40 I’d be tilted more toward stocks.

[QuarterMillionMan]

I tried to buy $5000 in T bills with 4.11% today with a 1 to 2 month maturity from my TD Ameritrade account but the minimum is about $40,000. I think with $5000 minimum, they require a longer maturity period maybe 6 months which is what I purchased the last time about 6 months ago.

[disneysteve]

The 10-year Treasury is now over 4% for pretty much the first time since 2008. If you're looking to lock in a good long-term rate, now is probably a good time. Yes, rates will rise a bit more this year but are then expected to start trending down again. A couple of years from now, that 4+% is probably going to look like a brilliant decision.

[Boogaloo]

The 10-year Treasury is now over 4% for pretty much the first time since 2008. If you're looking to lock in a good long-term rate, now is probably a good time. Yes, rates will rise a bit more this year but are then expected to start trending down again. A couple of years from now, that 4+% is probably going to look like a brilliant decision.

Hi Steve,
I am struggling with wrapping my head around playing the bond ladder game now and for the near (short term) future while rates are high, in order to maximize my returns with the (dead money) cash reserves I have in hand.
Do you have any good resources or reading I might be able to consume that would point me in the right direction as far as bond ladders are concerned? Is the 4/8/13 week strategy the best way to go?
Any help here is greatly appreciated!
Thanks!

[disneysteve]

Hi Steve,
I am struggling with wrapping my head around playing the bond ladder game now and for the near (short term) future while rates are high, in order to maximize my returns with the (dead money) cash reserves I have in hand.
Do you have any good resources or reading I might be able to consume that would point me in the right direction as far as bond ladders are concerned? Is the 4/8/13 week strategy the best way to go?
Any help here is greatly appreciated!
Thanks!

I’m no expert but I’d say it depends on your goals and timeline. When will you need the money? Do you need regular interest payments?

I semi-retired last year. I wasn’t 100% confident of how our cash flow would be so I started buying Treasuries so that $5,000 matured every month through 2022 and 2023. Now that we’ve been managing just fine for 8 months I realize we don’t need that so I’m redeploying those funds for a chunk to mature every 3 months for the next 3 years and will also start extending out as far as 10 years with some of the money.

You can get 1 year Treasuries for 5.365% now which is great for short term funds. And shorter durations aren’t much lower. Everything up to 3 years is over 5%.

As for reading, I think there are some bright folks in the early-retirement.org forum. There’s a long-running thread on Treasuries.

[Thrif-t]

I found this Youtube channel and I love it!! She gives great tutorials. Check out this one on building a t bill ladder.

https://www.youtube.com/watch?v=__oqvdtLoiE&t=112s

[Captain Save]

the longer term ones are petty attractive considering this might not last long

[disneysteve]

the longer term ones are petty attractive considering this might not last long

Since I posted about the 10 year, rates have dropped. It’s now down to 3.74%. The SVB failure is feeding into that and it may get worse this week. Hopefully when the dust settles it will trend back up over 4%.

We have to wait and see if the bank issue impacts the Fed’s rate increase plans.

[skives]

On treasury direct is there a way to know the t bill interest rate before the auction?

[disneysteve]

On treasury direct is there a way to know the t bill interest rate before the auction?

No. The rate isn’t set in advance. There are various websites that make predictions but the final rate isn’t known until the auction happens. That’s a benefit of buying on the secondary market because you know exactly what you’re getting.

[QuarterMillionMan]

In 2022, I bought $10,000 worth of I-bonds, in 2023, I sold $10,000 worth of the same I-bonds but left the $700 in interest in Treasury Direct. I'm assuming I won't have to pay taxes yet since I didn't withdraw the $700 interest.

[disneysteve]

In 2022, I bought $10,000 worth of I-bonds, in 2023, I sold $10,000 worth of the same I-bonds but left the $700 in interest in Treasury Direct. I'm assuming I won't have to pay taxes yet since I didn't withdraw the $700 interest.

Interest is taxed in the year you redeem the bonds. It doesn’t matter what you did with the money. You should get a 1099 for that interest early next year.

[disneysteve]

How much interest is that $700 earning? I’ve never heard anyone talk about just leaving money there uninvested.

[QuarterMillionMan]

The $700 is earning interest at the rate today which might be 4%, I'm not exactly sure.

Also, I had bought another second round of $10,000 in I-bonds before withdrawing the first $10,000 in I-bonds. However, the second round of $10,000 in I-bonds has not yet been 1 year yet so I cannot withdraw that second round just yet (but I may just leave it along with the $700 interest for more years).

[QuarterMillionMan]

I stand corrected and I did redeem $10,700 in 2023 so I will have to pay taxes. All that's showing now is the second round of my $10,000 purchase which is at $10,288.