Need a safe place to park some cash? Consider a T-bill exchange-traded fund
Q. Would you give us retirees your view as to the safest place for our hard-earned savings while we are having bank failures?
H.V., by e-mail
A. For most people, the $100,000 FDIC insurance limit essentially eliminates any risk of loss. Those who have more than $100,000 in their accounts or CDs should act to limit their deposit amount to $100,000. Many people do this by having accounts at multiple institutions.
If you have a significant amount of cash that you want to park in a safe place, an exchange-traded fund (ETF) that invests in short-term Treasury bills is a good option. The SPDR Lehman one- to three-month Treasury Bill ETF (ticker: BIL) may fluctuate slightly in value, but it is close to being a money market fund.
Unlike money market mutual funds, however, it has an expense ratio of only 0.14 percent, so you get most of the yield. (The average taxable money market fund, according to Morningstar, has an expense ratio of 0.62 percent.)
One way to check the current yield is to examine market data figures on the Bloomberg website (www.bloomberg.com/markets/rates/index.html). It shows a current yield on three-month Treasury bills of 1.52 percent. The low yield is a powerful indication that you aren't the only person seeking safety - a flood of safety seekers has driven the yield on short-term Treasurys to incredibly low levels. A low yield, however, is the price you pay for safety.
The disadvantage of the ETF Treasury bill fund is that you'll have to pay a brokerage commission to buy and to sell. Selective investing in three- or six-month CDs is likely to bring a yield closer to 3 percent.
Q. I've lost $2,000 in a year in my (Postal Service) thrift plan by investing in the C fund, the one that invests in US stocks. I have less than $8,000 in the plan. Should I switch to the international stock fund or maybe the bond fund? I retired a year ago and need to watch my money a little more closely. I was going to roll over my account to a big fund company (Vanguard), but I'm not sure.
L.M., Seattle
A. If you are going to be a stock investor, you'll need to accept that the value of your investment will go down as well as up, sometimes by uncomfortable amounts. Living with uncertainty is the price you pay for getting higher returns that equities have provided to long-term investors.
If you can imagine needing to use every bit of your investment money in only a few years, you shouldn't be investing in equities. If, however, you can imagine not needing some of your money for at least three years, then invest some money in equities.
International investing is not a good choice if your goal is to reduce your risk. Instead, you should be moving some of your money to a fixed-income fund, such as the G fund, the one that invests only in government securities. And stay with the Thrift Savings Plan.
Scott Burns is a syndicated columnist. He can be reached at scott@scottburns.com.
