US Treasury Bills???

84porsche · 84porsche's Garage

What do you guys know about treasury bills? Are they a decent investment? I remember a little from economics. Do any of you own these? Please explain. I have heard from others that the US ecconomy would have to fail for you to lose your money. I was reading in the WSJ that the rate for 13 weeks is 3.400%. Is this if I hold the bill for 13 weeks I collect 3.400% or is this percentage divided on an annual basis. Any help is appreciated. I am doing other research now but wanted to see what you guys know.

legion · 08-11-2005, 07:33 AM

It's an annualized rate, meaning you'd have to hold it for one year to realize that return. It's also considered a zero-risk investment. You could put your money in high-rated bonds, and realize a slightly greater return for a slightly greater risk.

TheMentat · TheMentat's Garage

legion is right (with the exception that higher risk implies a lower rating). Generally speaking however, higher rated commercial paper (essentially bills issued by corporations, rather than the Treasury) renders a better risk/return tradeoff.

84porsche · 84porsche's Garage

legion,

Can you give me a good place to look up "high-rated bonds" so I can do some research. I don't mind the risk so much as long as the return is good.

legion · 08-11-2005, 10:03 AM

I meant that high-rated bonds are a higher risk than T-bills. Sorry, that wasn't clear.

Moody's and Standard & Poor's are two of the big bond-rating companies. It looks like you have to have an account with each to view their research on their respective websites. You be able to get at bond ratings through the brokerage (online or brick & mortar) you will use to buy the bonds. I believe you can buy T-bills directly.

turbo6bar · 08-11-2005, 10:47 AM

Unless you have a good chuck of change, I think a high-yield bond fund is the way to go. I could be totally wrong, but I believe you need $10k to get into a corporate bond versus maybe $1000-2500 for a bond fund. The downside to a high-yield bond fund is risk (you are guaranteed jack as far as rate). Fidelity, or any other online brokerage, offers a web interface for selecting/screening bonds.

84porsche · 84porsche's Garage

I am still relatively young and want to make some good investment choices now with my limited income so that when I reach 40 or older that I can cut back on work and live off my investments. I know I may be dreaming but no rat race for me so to speak. I will have to look up high-yield bond funds.

TyFenn · 08-11-2005, 01:20 PM

84 - if you are still in your 20's I would suggest an alternative approach. I think people generally buy bonds to keep their money not necessarily make it grow, which if you're young is not ideal. My humble advice is to search for an option with a bit more risk...for an opportunity at a bit more return. If you don't mind me asking, what are some ballpark numbers you're talking about. For example, with a 1000 I'd invest a lot different than if I was looking at 10000. I'm not trying to beat you with the blunt edge of the obvious, but I would have different suggestions for different situations.

Either way, best of luck.

turbo6bar · 08-11-2005, 01:22 PM

Quote:

Originally posted by 84porsche
I am still relatively young and want to make some good investment choices now with my limited income so that when I reach 40 or older that I can cut back on work and live off my investments. I know I may be dreaming but no rat race for me so to speak. I will have to look up high-yield bond funds.

If you are interested in locking in the bucks long-term, I'd would only invest a very small percentage of cash in bonds. The rest should go into growth, value, international stocks and mutual funds. I think you are heading in the right direction re: the rat race. Let your money work for you.

On the other hand, if you think you will need the cash for upcoming business or investing opportunities, short-term bonds are a good place to park your cash and maintain buying power.
good luck, jurgen

EDIT: TyFenn posted while I was typing. I agree with the advice.

84porsche · 84porsche's Garage

TyFenn and jurgen,

I am 25 and have about 4-5k that I can work with. I have a portion of this invested in stable stocks right now but want growth and adequate growth. I know I can get at least 3% from an ordinary savings/CD but I would like to at least reach 15% if not 10% return. This may sound foolish but I keep an open mind and willing to take a calculated risk. As far as mutual funds, this is something that looks very possible, the problem I have which may be common is knowing which is a good investment and which isn't and I am sure this comes with time. Thanks for all your help.

Bill Verburg · Bill Verburg's Garage

you are way too young to be putting your long term investments in treasuries.

Yes, you want a 6mo or so rainy day fund in cash or cash equivalents like mm or short cds, in a rising rate environment short and cash are good.

For long term investments, unless you have some unusual skill or insight, I would go w/ low cost mutual funds, Vanguard, T Rowe Price and Fidelity all have some good choices.

You may also want to spend some time over at the forums at Morningstar

If you have a 401 or 403 max it out to the company match, then max out a Roth IRA, then if you have more invest-able cash, max out the 401/403

When young bias to stock w/ a small % of bonds, hel* I am retiring very soon and still have 80/20 which is good for a 25 yr old but very aggressive for an old Fa**

porsche356a · 08-11-2005, 02:35 PM

Couple investment questions... a lot of you guys on this board appear to know what you're doing... I'm winging it... anyway...

31, currently max my 401k + 5% match of my total salary by my employer (about 115K per year). Another 5% per year of my total salary by my employer in a cash-based pension. The 401k has about 100k in it (invested in dividend growth and low-cap stocks).

Own a house worth 375k, owe 250k. No kids, no wife, no debt, a hound dog. About 10-15k in cash.

Any suggestions? Long term strategies?

pwd72s · 08-11-2005, 02:55 PM

Lots of good advice here. I should warn you however, that a common name for "high yield bond" is also JUNK BOND. Yes, these bonds offer a higher percentage...that's because they are higher risk...high yield bond funds buy bonds from companies that are often companies in trouble. The NAV (net asset Value) of high yield bond funds can drop suddenly. Don't ask me how I know...

If retiring at 40 is your goal, better do some heavy research on IRAs...although they offer an excellent tax shelter, they have financial disincentives for withdrawing money before age 59, plus six months. 15%? In this market??? If you pull that one off, consistently, over a decade or more, become a fund manager!

356a? You're bragging, not asking for advice...and you have every right to do so. Other than suggesting you build up your cash reserves in something liquid, by perhaps cutting back on unneeded spending, (it's good to have a six months reserve of cash in case something unforeseen happens that chops off your income flow) I'd say you're WELL on track...I'd suggest you explore the options within your 401K, decide your own choices for asset allocation, keep taking that 5% free money your employer offers, and enjoy the ride.

porsche356a · 08-11-2005, 02:58 PM

pwd72, I've seen your 72 in person. Now that is something to brag about!

I know it is a good start, but I am looking for ways to maximize what I'm doing.

pwd72s · 08-11-2005, 03:26 PM

356a? Thanks...we kind of like our old car, once dubbed a POS by a guy with a 996. Ways to maximize? Gee, at age 31, I don't know that I'd worry about that too much. The power of your money working for you, compounding upon itself over 30 years? Wow! Just wish I had the 30 years!

I'd suggest perhaps more diversity in your 401K...an index fund, if one is offered. Either total market or S&P 500. This because there are times when small cap stocks are hot, and times when the large cap stocks are hot, and it's damned difficult to pick the switch time.
Also...FEES MATTER. a 1.5% fund management fee means that after 10 years, the manager has 15% of your money. Pay close attention to that portion of your bottom line if you can. We do our own fund buying through Vanguard. The maximum fund management fee we are paying right now is point two percent, under 1/4 of one percent.

Hugh R · 03:53 PM

Good topic, I recently switched from a full service broker how had done poorly for me for 13 years, to Schwab for my IRA. I'm putting $5K blocks in a number of mutual funds with 4 or 5 star morningstar ratings and that have returned at least some positive growth in the last five years and better than the S&P 500 over the last 10 years. If I can't get better than an S&P 500 index fund, why not just do that? Also, I'm selecting funds that don't mimic each other, some are in real estate (financials), some in industry, healtcare, home building, electronics, transporation, etc. I've invested about half my IRA cash at this time, and am in a money market for the balance until I figure out what else to get in. Not individual stocks, well.. maybe a few thousand to play only. I'm looking at Gennie Maes, I'm not sure at this point. I've got about 15 years to retirement. Any suggestions? I'm still doing research.

Question for Ken x men or moneyguy; Schwab's "no load, no fee" mutual funds all seem to have expenses of 1 to 1.5% is that a backdoor way of getting around "annual fees" and charge them another way, like my old broker did at 1.2% annual "fee"? Or should I be looking at other mutual funds with lower fees like 25 basis points (0.25%)?

Hugh R · 08-11-2005, 04:08 PM

Looking at Dreyfus Funds and their Premier Small Cap Equity fund, for a $100,000 investment they get 4.5% commission $4,500, and a 1.35% annual fee so my first year they take 6.75% approximately and to sell after 1 year a 4% out fee. So in one year they take 10.75% if I get out and if I hang in for 6 years a 1% exit fee. So on my $100,000 in year one its $6,750, year two through year 6 another 1.35% of the account value. But their 1 and 5 year growth is 13.7 and 16.01% which is pretty good. With 6.75% effective fees the first year on my $100,000, that shaves the effective return from 13.7-6.75 to under 5%. For year two, its less, but your in the hole or marginal returns for several years as you amortize that sales commission, not to mention the selling commission.

Bill Verburg · Bill Verburg's Garage

Quote:

Good topic, I recently switched from a full service broker how had done poorly for me for 13 years

Good move brokers prey on the uninformed.

everyone investing their own money needs to be informed and learn the ropes.

Quote:

I'm selecting funds that don't mimic each other, some are in real estate (financials), some in industry, healtcare, home building, electronics, transporation, etc

Thats called diversification

More commonly its broken down
stocks/bonds/cash
stocks are further subcatagorized as US or foreign

US stocks are then divided into a 3x3 matrix
LV LB LG
MV MB MG
SV SB SG
w/ diversifier's in real estate, convertibles etc.

Just for an example any of the S&P Index Funds are LB(large blend which means they have some large value and some large growth stocks in them), a good expense ratio for them is ~.15% Fidelity is slightly lower Vangard is slightly higher. For the last few years value stocks have been the place to be, but that is cyclical and many pundits feel that growth will out perform over the next few years.

Having a solid core of very low cost index funds is an excellent way to start and give s you the incentive to learn more.

There are lots of different Indexes don't but just 1.

For pure LC growth An expense ratio of >1% is good the smaller caps will be slightly more expensive to own but are needed for diversification.

You can also buy ETFs which are even lower in cost and trade like stocks but are just baskets of stocks(or bonds) that mimic a given index.

Please do not ever pay a commision for a mutual fund there is absolutely no reason to do so.

There are great no load and low fee funds out there in every catagory you could possibly want.

ubiquity0 · 08-11-2005, 04:23 PM

Dumb question : what are the characteristics of a stock that distinguishes it as growth versus value?

Hugh R · 08-11-2005, 04:26 PM

I'm not in indexes yet, But I may look into them as well. Your right Bill, while I have an MBA (20 years ago which I don't really use) I've been inattentive and trusting of my old broker. It pisses me off to no end that in the last ten years the S&P 500 has averaged about 9.9% and my accounts did much less than that. That's why I bailed on Smith Barney. They charged me over $7,000 in fees over the last five years to give me no dollar growth in my IRA. Granted things went down after 9/11, but I'm barely where I was in absolute dollars five years ago. For a while, I bought the argument that if I'd been on my own, it could have been much worse. If I'd gone to a cash position the day after 9/11, I'd have more money because I wouldn't have paid all those fees.