Warren Buffett parks most of Berkshire Hathaway’s cash in ultra-safe U.S. Treasury bills, and individual investors may want to consider following Buffett’s lead now that they are yielding as much as 3%.
Treasury bills, which are U.S. government securities maturing in less than a year, are a good alternative to money market funds and bank certificates of deposits. Interest is exempt from state and local taxes, a contrast with bank CDs.
Investors can buy them directly from the Treasury through the TreasuryDirect program or through banks and brokers.
Buffett, the long-time
BRK.B) CEO, prefers T-bills to such other short-term debt as commercial paper (a corporate IOU) because he never wants to worry about the safety of Berkshire’s cash trove, which totaled $105 billion on June 30. About $75 billion of that total is held in Treasury bills. Buffett regularly refers to the T-Bill holdings in his annual shareholder letter.
T-Bills are sold with maturities of three, six and 12 months as well as four and eight weeks. The three-month bill now yields 2.5%; the six-month bill, 3.05%; and the one-year bill, 3.2%, according to Bloomberg. Yields have risen from just above zero a year ago as the Federal Reserve has lifted short rates, with the key Federal fund rate now at 2.25% to 2.5%.
The three- and six-month bills are auctioned weekly by the Treasury and the one-year bills every four weeks.
Another way to get exposure to T-bills is through exchange-traded funds like the $20 billion
iShares Short Treasury Bond ETF
(SHV), now yielding 2.1%. It has an average maturity of about four months and holds U.S. Treasuries maturing in a year or less.
Those who want more yield—and a little rate risk—can buy the
iShares 1-3 Treasury Bond ETF
(SHY) now yielding close to 3% with an average maturity of about two years.
Money-market fund yields also have risen with short rates. The $250 billion Vanguard Federal Money Market Fund (VMFXX) now yields 2.1%.
T-Bills are sold at a discount from their face value of $1,000 with the discount representing the interest payable to holders. Investors get the face value of $1,000 at maturity. The minimum investment is $100.
T-Bills are liquid and can readily be sold through banks and brokerage firms. Many investors hold them until maturity.
While T-bill yields aren’t close to the inflation rate of 8.5% in the past year, they look good versus other short-term investments—and offer a tax benefit in the state and local exemption.
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