Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Investors Should Seek Maximum Safety in U.S. Treasury Bill ETF's

Interest-Rates / US Bonds May 22, 2009 - 02:31 AM GMT

By: Money_and_Markets

Interest-Rates

Best Financial Markets Analysis ArticleRon Rowland writes: I’ve just finished reading Martin’s new book, The Ultimate Depression Survival Guide. I highly recommend it. Martin says — and he’s exactly right — that the safest place in the world for your money is U.S. Treasury bills. In his book you’ll find a very handy list of money market funds that invest strictly in short-term Treasury securities: No commercial paper, bank notes, or other risky bonds.


But did you know you can also use exchange traded funds (ETFs) to invest in Treasury bills?

Many people think ETFs are just for more speculative investments like stocks or commodities, but that’s not true. You can buy and sell ETFs that hold things like short-term T-bills, too.

The U.S. Treasury is the world's safest bank.
The U.S. Treasury is the world’s safest bank.

Treasury bills are the investment world’s Rock of Gibraltar. They’re backed by the “full faith and credit” of the United States Treasury. If you hold T-bills to maturity, you will get all of your principal and interest … guaranteed. The only way you can lose is if the U.S. government defaults on its debt. True, we’ve got our problems, but we aren’t a banana republic just yet.

If this sounds like what you’re looking for and you want to invest in Treasury bills, I suggest you take a look at these two ETFs …

The iShares SHV holds T-bills that mature in 12 months or less.
The iShares SHV holds T-bills that mature in 12 months or less.

iShares Barclays Short Treasury Bond Fund (SHV): This ETF’s name is a little confusing. When they say “Short Treasury” they don’t mean it’s an inverse fund. The point they’re trying to make is that this ETF owns short-term Treasury securities — specifically those with a maturity of twelve months or less. Right now the average maturity of the bonds they’re holding is a little less than five months.

SPDR Barclays Capital 1-3 Month T-Bill ETF (BIL): This ETF has an even narrower focus than SHV. In BIL, the longest maturity is only three months. The average maturity is currently about seven weeks. BIL’s name may be a bit confusing, too. The first word indicates that it’s a SPDR brand product from State Street. The “Barclays Capital” in the name means that it is based on an index maintained by Barclays.

Why should you care about maturity if all Treasury securities are so safe? Well, notice the caveat I used earlier: You can’t lose money in Treasury bills if you hold them to maturity. Like most bonds, a T-bill’s market value is exposed to interest rate risk. That means the longer the maturity, the more you’ll be hurt if you have to sell your Treasury bills while interest rates are rising.

Buying either SHV or BIL basically gives you what bond traders call a short-term “laddered portfolio.” As the Treasury securities in the portfolio mature, they are replaced with new ones. Both ETFs also pay a monthly coupon that will vary over time, based on prevailing short-term interest rates.

Do SHV and BIL have the same advantages as other ETFs? You bet they do!

They’re Liquid: You can buy and sell SHV and BIL at a moment’s notice, any time the markets are open. You can also use advanced features like limit orders and stop-loss orders.

They’re Inexpensive: These two ETFs have a tiny annual expense ratio of 0.15 percent or less. Go through a discount broker and your trading commissions can be negligible as well.

They’re Transparent: Both iShares and SPDR publish the holdings for all their funds on the Internet every day.

You see with SHV and BIL, even conservative investors can take advantage of the same features that have made ETFs the most popular new investment in years.

One word of warning: These are not money market funds or bank accounts. They aren’t insured by the FDIC, either. The prices fluctuate during the day, so it’s possible you could lose money, depending when you buy and when you sell. Trading in and out on a short-term basis is probably not a good idea.

But as I said above, these ETFs hold nothing but U.S. Treasury securities, so your risk is fairly minimal. The ideal use for SHV and BIL is when you want to park some cash in a safe place and you feel confident you’ll be leaving it there for several months or longer.

Treasury bill ETFs are a great parking place for your extra cash.
Treasury bill ETFs are a great parking place for your extra cash.

Which ETF is better? That depends on your objectives …

SHV holds longer-maturity Treasury securities, so it has a slightly higher yield right now.

But the day-to-day price of SHV fluctuates more than BIL, which makes it slightly riskier.

You’ll need to judge for yourself if the added return justifies the added risk.

If you are very concerned about safety, or you think interest rates are likely to go up in the near future, then BIL may be the right choice for you. Just keep in mind that you’ll pay for this safety in the form of a lower current yield.

What if you’ve never bought an ETF before?

Then either one of these funds will be a good place to start. You can buy a small position and get comfortable with the process. Even if you make a mistake it shouldn’t cost you very much. Once you see how it all works, you’ll be ready to consider moving into more aggressive ETFs when market conditions allow.

Best wishes,

Ron

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Phil
22 May 09, 15:42
T Bonds

This article smells of something unsvoury.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in