SHARE

Partner Content

Yield Enhancement: Investing Short-Term Cash in T-Bills

Investors holding cash for short-term purposes like taxes or down payments might consider T-Bills for extra yield.

Whether for taxes, a home down payment, or otherwise, investors may need to hold sizable amounts of cash at times.  Throughout the 2010s, opportunities to earn any meaningful yield on that cash didn’t exist.  As interest rates have risen throughout 2022, that has changed.

Investing cash in short-term U.S. Treasuries (T-Bills) hasn’t been this attractive in 15 years.

T-Bills Then and Now

T-Bills aren’t new – they’re bonds issued by the U.S. government maturing in 1 year or less.  They also happen to currently be one of the best short-term options for enhancing the yield earned on your cash in a safe asset.

The average 6-Month T-Bill yield from 2008 – 2021 was a paltry 0.56%.  Today, holding a 6-Month T-Bill will earn you an annualized return of 4.31%.  If you’re willing to extend a bit further, a 1-Year T-Bill will yield 4.50%.  Compare that to the 0.22% and 0.40%, respectively, you would’ve earned had you bought at the start of the year.

Beneficial Tax Treatment

Treasuries are also tax advantaged.  Interest is subject to federal income tax but is free from state and local income taxes.  On a tax-adjusted basis, we believe select Treasury yields are now as or more attractive than yields on other fixed income options with similar maturities, like high quality corporate bonds.

The Price Risk of Treasuries

Despite their “risk-free” label, the trading of Treasuries is not riskless.  Unlike other short-term investment options like high yield savings accounts, Treasuries are securities that can fluctuate in price.  T-Bill prices change daily alongside interest rate sentiment.  If the market believes rates will rise, T-Bill prices will fall.  If the market believes rates will fall, T-Bill prices will rise.  Bond prices and bond yields have an inverse relationship.

That being said, T-Bills will always mature at face value.  Aside from the unlikely event of a U.S. government default, an investor in T-Bills will earn back their initial investment plus interest if held to maturity.  Thus, we recommend investors considering T-Bills do so only if they would be comfortable holding them to maturity.

Final Word

The menu of options for investors looking to park their cash in the short-term has grown recently.  Among the options, we believe T-Bills are compelling given their enhanced yield and “safe asset” characteristics when held to maturity.  Please consult with an experienced financial advisor to determine whether this strategy is appropriate for you in the context of your broader financial plan.

Read More from Saugatuck Financial

[Disclaimer] The opinions expressed are those of Luke Andriuk as of the date stated on this article and are subject to change. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment or security. All investments carry some level of risk, including the potential loss of principal invested. Indexes and/or benchmarks are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance and are not indicative of any specific investment. Diversification and strategic asset allocation do not assure profit or protect against loss.
Luke Andriuk uses Saugatuck Financial as a marketing name for doing business as a representative of Northwestern Mutual. Saugatuck Financial is not a registered investment adviser, broker-dealer, insurance agency or federal savings bank. Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company, Milwaukee, WI (NM) (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries in Milwaukee, WI. Luke Andriuk is an Associate Insurance Agent of NM. Investment advisory services are provided as an Advisor of Northwestern Mutual Wealth Management Company®, (NMWMC) Milwaukee, WI, a subsidiary of NM and a federal savings bank. Investment brokerage services are provided as a Registered Representative of Northwestern Mutual Investment Services, LLC (NMIS), a subsidiary of NM, broker-dealer, registered investment adviser and member FINRA and SIPC.

Topics
Investing and the EconomySponsored ContentTax Planning StrategiesWealth Management

Disclaimer: Worth magazine is a financial publisher and does not recommend or endorse investment, legal, insurance or tax advisors. The listing of any firm in the 2019 Worth® Leading AdvisorsTM Program does not constitute a recommendation or endorsement by Worth magazine of any such firm and is not based upon Worth magazine’s experience with, or prior dealings with, any advisor. The information presented for each advisor, including but not limited to any related profile, statistical data, presentation, report, commentary, recommendation or strategy, has been provided by such advisor without review or independent verification by Worth magazine. Any such information is the sole responsibility of the advisor. Worth magazine makes no representation or warranty as to the accuracy or completeness of such information, assumes no liability for any inaccuracies or omissions therein and disclaims responsibility for the suitability of any particular investment recommendation or strategy for any person. Nothing contained in Worth magazine constitutes or should be construed as any form of investment, legal, insurance or tax advice or as a recommendation to buy, sell, hold or trade any securities, financial instruments or assets. Readers are advised to consult their legal, financial, insurance and tax advisors prior to making any investment or pursuing any investment strategy. Past, model or hypothetical performance is not indicative of future results.

back to top