OT: Investing in T-Bills

[BobbyJones]

Question for the financial guys-

Before I go down the rabbit hole, is there anything I'm missing with putting cash in 4 week T-Bills for the foreseeable future?

NYC resident. I'm thinking about the tax angle. All comments welcome!

Thanks.

[echappist]

Have you purchased these instruments before?

They are pretty straight-forward. The only thing to note (for the ones on the secondary market) is that they can be traded only at certain times of the day.

Then when it's tax time, you'll get a 1099-IND form that expressly states how much of your interest income is from Treasury Obligations (line 2). Line 2 on that form, as opposed to line 1 (overall interest income), is used for purposes of state and local income taxes.

[Louis]

Looks like there's some good info here:

https://www.investopedia.com/terms/t/treasurybill.asp

[Ralph]

I don't consider short term T bills an investment, but they are useful for safely holding short term cash. Would go 8 weeks probably if me. Just use treasury direct.

[veloduffer]

T-bills can be a good investment for the short term while the yield curve is inverted. It also makes sense if you are worried that the Fed can't achieve a soft landing and instead enter into a recession.

There are some worrisome economic signs:
- more layoffs happening: Prudential, Citibank, Spotify, etc.
- credit bubble in leveraged loans (riskiest part of fixed income)
- commercial real estate lending is in distress as work from home is killing the office sector and multi-family is overvalued
- will China's credit problems spill into global markets
- geopolitical risk (Ukraine, Israel-Gaza) --is Taiwan next? India? US elections in 2024?

[Louis]

Originally Posted by veloduffer

- geopolitical risk (Ukraine, Israel-Gaza) --is Taiwan next? India? US elections in 2024?

Who needs T-bills, when there's GOLD to be stashed away...

[nkantamaneni]

Originally Posted by Louis

Who needs T-bills, when there's GOLD to be stashed away...

yup, Costco perhaps

[reuben]

I've been rolling over 6 month and 1 year bills every few months for a while now, since rates (in the US) became enough to be useful. The rate varies as I do this, but I have very little interest or duration risk, and inflation won't kill the interest I do get over the short life of the bond.

I've been doing this in a tax-deferred account for ... tax reasons.

[CNY rider]

Open a Treasury Direct account, fund it, and set up reinvestments when you buy your bills.
Easy peasy.

[ColonelJLloyd]

Another option is Vanguard's VMFXX money market fund. It has the advantage of being effectively liquid.

[MikeD]

Originally Posted by ColonelJLloyd

Another option is Vanguard's VMFXX money market fund. It has the advantage of being effectively liquid.

Yeah this unless the T-bill interest rate is better, but interest in T-bills is state tax exempt. CD's should also be considered and have an even higher interest rate than money market accounts.

I've never owned a T-bill but how easy is it to redeem and how fast do you get the cash?

[reuben]

In my experience they redeem automatically and the cash shows up in about a day. This is in a brokerage account, not via treasurydirect. I even get an email a few days or a week ahead that something is maturing, which prompts me to look at reinvestment options.

[Ralph]

One problem is when you miss a day or two of interest when rolling from one T bill to the next one (using 30 day bills), that impacts your annual return quite a bit. I use the Vanguard Gov't money market fund mentioned above. It has minimal internal fees. I live in an income tax free state, but believe interest from an all gov't money market fund has same tax treatment as T bills in a state with an income tax.

[MikeD]

Originally Posted by Ralph

I live in an income tax free state, but believe interest from an all gov't money market fund has same tax treatment as T bills in a state with an income tax.

I don't think that's the case from what I could find. The only funds that are state tax free when held in a taxable account are muni bond funds comprised of bonds from the state you live in.

Edit: you're right to an extent: https://www.sfchronicle.com/californ...s-17839464.php. I live in California.

[pinkshogun]

I opened up a Fidelity account on the advice of a friend who didnt like Vanguards customer service. That being said, Fidelity's entry level money market account, SPAXX, is right at 5%