Treasury Bill Ladder Investing for the Common Man

Last Friday the Treasury Dept. announced that they were lowering the minimum amount necessary to buy treasury bills from $1,000 to $100. This is great news for the common man wishing to start investing in treasury bills because the cost of entry has just fallen 10-fold!

Why invest in T-Bills? Well, they are backed by the US government so they’re basically a risk-free asset, and they’re exempt from state taxes which significantly boosts your return if you’re living in a high tax state. Furthermore, it’s pretty liquid. You can easily set up a set of T-Bill purchases such that your entire investment is tied up only for 28 days, and you keep it set so that 25% of your funds comes back each week. Not bad. This diversification technique is called laddering and this link does an incredibly detailed job of explaining it in further detail if you’re interested.

Should you try this out? Well, probably not right now. The yields are at ridiculously low levels (0.5% on the 28 day as of this writing). I stopped my T-Bill ladder around August of last year once the adjusted yield (adjusted for not having to pay state taxes on it) fell below those of the internet banks, but you can always go ahead and set up your account at Treasury Direct. There you can also purchase bonds as well as convert paper bonds to electronic so you don’t have to worry about losing them. No better time than now to start planning for your personal finance future.

I will most certainly be getting back into T-Bills once rates rise. It felt great to exclude all that interest from NJ this year!

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