How I buy T-Bills

Hey friends,

I got this question over the weekend:

Basically it's just asking how to buy T-bills so you're not locked up in holding it.

To answer shortly: I just use an ETF. I buy $SGOV, and currently have a couple hundred thousand dollars of it.

The big advantage here is simplicity and liquidity. You can buy or sell anytime during market hours, your cash is effectively always accessible, and you’re still getting yields that closely track short-term Treasury rates. You’re not waiting for a maturity date.

If I were dealing with hundreds of millions as opposed to hundred of thousands of dollars, every tenth of a percentage would matter.

Which is exactly why Buffett buys T-bills straight from the Government. Buffett buys 3-month or 6-month T-Bills at auction (or through a brokerage). The cash is technically tied up until maturity, but it’s not locked forever. You can always sell them on the secondary market before they mature if you need liquidity, though the price might move slightly depending on interest rates.

People who do this often “ladder” them, meaning they spread purchases across different maturity dates so cash is constantly rolling back in.

Let's do a quick primer on T-Bills for fun!

To answer why Buffett (and I) like T-bills so much, first we have to draw a clear line between stocks and bonds.

This image does a good job showing the difference between stocks and bonds. However, the return is not guaranteed for bonds (as the image shows). The #1 risk in bonds is the risk of default. Put simply: the borrower is not able to pay you back.

So, stocks represent equity ownership of a business, whereas bonds represent a loan you make to a borrower.

It's Ownership vs Lending:

• With stocks, your risk is that the business performs poorly

• With bonds, your risk is that the borrower cannot repay the loan

Now let's talk about Treasuries. Treasuries (including T-bills) are just FEDERAL Government Bonds.

Because the U.S. government can tax and print currency, Treasuries are considered among the safest bonds in the world. Default risk is extremely low.

Treasuries come in different lengths:

• T-Bills: short-term, up to 1 year

• Treasury Notes: medium-term, 2 to 10 years

• Treasury Bonds: long-term, 20 to 30 years

Same borrower. Different time horizons.

So that's all we're doing when we buy T-bills. We're just buying short term government bonds. We like them because they are arguably the most risk-free way form of investing. Instead of letting my cash sit in a savings account and collect less than 1% APR, I can buy $SGOV and get 4% or so, virtually risk-free while I search for a bigger investment to make!