When you’re looking for a safe way to invest your money, it doesn’t get any more solid than government-backed securities. The U.S. Department of Treasury offers several different low-risk options, including notes, bonds and bills. Treasury bills can be appealing because you’re not required to tie up your money for a long period of time. But they’re not right for every kind of investor. Read on to find out whether adding them to your portfolio is a good idea. And if you’re looking for expert guidance, use SmartAsset’s financial advisor matching tool to get paired up with a financial professional.
How T-Bills Work
Treasury bills are short-term securities, which means they come with shorter maturity dates than bonds and notes. Certain types of T-bills have a maturity period of just a few days, but they’re typically issued in terms of four, 13, 26 or 52 weeks.
T-bills are assigned a specific face value, such as $1,000, $5,000 or $10,000, but you can usually purchase them for less than that. The amount you pay is called the discount rate. Once the securities mature, the government hands over the full amount of the bill.
Here’s an example of how the process works. Let’s say you purchase a $10,000 T-bill with a discount rate of 3% that matures after 52 weeks. That means you pay $9,700 for the T-bill up front. Once the year is up, you get back your initial investment plus another $300.
If you’re interested in investing in t-bills, make sure you aren’t looking at treasury bonds or treasury notes. While t-bills mature at four, eight, 13, 26 or 52 weeks, t-bonds and t-notes have longer maturity times. Notes mature at between two and 10 years while bonds mature at 30 years.
What Are the Benefits of Investing in T-Bills?
The number-one advantage that T-bills offer relative to other investments is the fact that there’s virtually zero risk that you’ll lose your initial investment. The government backs these securities so there’s no need worry that you could lose money in the deal.
Another benefit is that T-bills can be purchased in smaller amounts that many other investments. This means they’re more accessible to someone who doesn’t have a lot of cash to invest. If you only have $1,000 to invest, you can use it to purchase a T-bill and earn a better return on your money than you would if you put it in a regular savings account.
The fact that you can pick a short maturity term is another plus if you prefer to have some flexibility with your investments. A longer maturity term could yield a bigger return, but you can still earn some interest if you opt for a shorter term.
What Are the Drawbacks?
The biggest downside of investing in T-bills is that you’re going to get a lower rate of return compared to other investments, such as certificates of deposit, money market mutual funds or stocks. If you’re looking to make some serious gains in your portfolio, T-bills aren’t going to cut it.
Another potential issue for investors has to do with how T-bills are purchased. You have to bid on them through an auction process. Bidding can be competitive or non-competitive. With the former, you have to choose your discount rate and you might not be able to purchase the bills you want.
The Bottom Line
Treasury bills won’t necessarily make you rich but they can be a good way to add some conservative investments to your portfolio. If a lot of your cash is tied up in riskier bets like stocks or mutual funds, T-bills can balance things out without requiring a long-term commitment.
Tips for Managing Your Money
- A financial advisor can help you with a wide variety of financial situations. Finding the right financial advisor that fits your needs doesn’t have to be hard, though. SmartAsset’s free tool matches you with financial advisors in your area in 5 minutes. If you’re ready to be matched with local advisors that will help you achieve your financial goals, get started now.
- T-bills probably shouldn’t be the only thing you invest in. You should diversify your portfolio with things like stocks, bonds and other investments. To get a sense of how your investments should be divided up, use SmartAsset’s asset allocation calculator.
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