No. of Recommendations: 1
As residents in a high-tax state (CA), can you think of any reason why it would be stupid or short-sighted to put the majority of our cash, currently held in money market accounts, into 6 month T bills instead? We would, of course, leave sufficient funds in a money market account for a year's worth of living expenses in case of emergency. Since T bills are exempt from state taxes, this seems like a win. Also, the rate of return seems better than putting it in a state-specific tax exempt money market fund.

Am I missing something here?? Thanks in advance.
Print the post Back To Top
No. of Recommendations: 0
I am a resident of CA and agree T-bills are a great investment.

I have split my contigency fund into several vehicles. Current rates are.

Vanguard MM checking account CA-tax free 3.25% = 4.78% tax adj.
4 week T-bill ladder 5.227% = 5.62% tax adj.
13 week T-bill ladder 5.124% = 5.51% tax adj.

--
whyohwhyoh
Print the post Back To Top
No. of Recommendations: 0
Nope not missing a thing other than you may want to consider 4 week bills also. Going shorter could allow you to put some of your e-fund into treasuries, assuming you are willing to wait 4 weeks to tap the e-fund.

jack
Print the post Back To Top
No. of Recommendations: 4
Blearynet,

Shifting assets around is, at bottom, a timing problem. So let me ask this question: Why weren't you beginning to rotate some money into T-Bills almost two years ago when the Fed began their rate hikes? What that suggests to me, and my apologies in advance if I guessed wrong, is that you don't have in place a principled and disciplined way of making of making yield comparisons, nor a principled and disciplined way of acting on your results, which consists of at least three things: a way of telling “When to get in?” “When to get out?” and “How much?”

Fortunately, fixing those problems is simplicity itself. Pull historical data, create charts, run your numbers, form a plan, and then implement it. And those really are the steps you're going to have to do for yourself. Just because other peoples' situations seem to be similar doesn't mean that they really are. The devil is always in the details, and the downsides of everything have to be considered first, last, and between times. What could go wrong if you did what you propose? If you truly can't find any downsides, and the upside looks significant, then go for it, because you'll then be doing so in a fully informed manner that you understand, because you built the plan, not someone else.

But remember this caveat: Nobody but nobody can predict the future. To assume that the present trend will continue is just that, an assumption. When the trend changes, and it will (which isn't a prediction, but rather a tautology), you need a way of knowing that the trend has changed and you'll need a plan already in place as to what to do next. Yes, right now, especially for us high state-taxes people, T-bills are a sweet spot compared to other alternatives. How long will that trend continue? Who knows? Are T-bills a useful asset class whose consideration should be a staple of one's financial planning? For sure. Can a small investor generally beat the yields offered by Money Market funds? Yes. A lot of very positive things can be said about T-Bills and the Treasury's program generally. But it's your own numbers and situation that matters, and only you can decide what is best for you.

A tiny suggestion: import the data you need to compare into a spreadsheet and then plot it such a way that you can see general trends, not just isolated spikes. Work with the data until you can gain a real feel for it, and you are in synch with its moves. Then start making your plans. Don't try to tell the data what you want to see. Let it do the talking. Just listen. It will tell the story it wants to tell, and it will share a bit of its wisdom. Your data is your partner, and between the two of you, you'll come up with a good plan.


Charlie

Print the post Back To Top
No. of Recommendations: 0
I'm assuming you're retired? Because otherwise the biggest problem I would have with your question if the fact that you seem to have much more than a years worth of cash set aside.

But yes, for any money you have set aside for cash/safe, T-Bills are a good choice if you're in a state with at least a modest state tax. I have a 5.3% state tax here in Mass and am developing a ladder of 6 month T-Bills. The only question is how much should you really have in cash.
Print the post Back To Top
No. of Recommendations: 2
If I remember correctly, t-bills just became interesting in the last few months. Prior to that, bank money market funds at ING, Emigrant, GE, etc had higher after-tax yields. So those of us that have ladders are now interested in t-bills due to the fact that the after-tax yields are now higher than the after tax money market yields or CD yields (in some cases with respect to CD yields).

ToroBravo2003
Print the post Back To Top
No. of Recommendations: 0
If I remember correctly, t-bills just became interesting in the last few months.

Toro,

"Interesting to whom?" is the question that has to be asked, because each person's situation is different.

For people in high-tax states and whose returns from T-Bills having been beating your named alternatives for a long time, T-Bills have been "interesting" a lot longer than than just "the last few months".

Again, each person's situation will be different, but always includes the need to track changes and to make timely decisions. But that isn't what happens, and most investors haven't even bought their ticket when the train is pulling away from the platform, which is why the financial press and the talking heads have such sway over the investing public, who are typically a day late and a dollar short of doing their own thinking and are always looking for someone else to tell them what to buy, and when, and what is "interesting", and what is not.

Charlie
Print the post Back To Top
No. of Recommendations: 0
As residents in a high-tax state (CA), can you think of any reason why it would be stupid or short-sighted to put the majority of our cash, currently held in money market accounts, into 6 month T bills instead? We would, of course, leave sufficient funds in a money market account for a year's worth of living expenses in case of emergency.

A whole year's worth of living expenses in a money market account? That seems excessive to me. Even if you are worried about losing your job. VickiSpouse just lost his job and retired, so that's no longer a concern for us.

I can sell my treasuries at any time for a $45 fee and get back my principal and some of the interest. (I haven't calculated it out to compare it with a CD early-withdrawal penalty.)

I've got a ladder started with 3 and 6 month Treasuries, so there is money coming free every 3 months. You could put some in 4-week Treasuries too.

On the other hand, you have to consider your personal sleep factor--how much do you need in a money market account to let you sleep at night?

Vickifool
Print the post Back To Top
Advertisement