Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
BREWING FINANCIAL CRISIS 2.0 Suggests RECESSION 2022 - 28th Jan 22
Financial Stocks Sector ETF XLF $37.50 Continues To Present Opportunities - 28th Jan 22
Stock Market Rushing Headlong - 28th Jan 22
The right way to play Climate Change Investing (not green energy stocks) - 28th Jan 22
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

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

© 2005-2019 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