Unleashing the Secrets to Mastering Your T-Bill Ladder Construction.

Want to Know How to Build a T-Bill Ladder?

Let’s strip away the complexity and break it down.

First up, what are Treasury Bills? They’re basically IOUs given by the US government. When you buy a T-bill, you’re lending your money to the government. In return, they promise to pay you back your original investment plus some extra change, also known as ‘interest’, after a certain period. But unlike other investments, T-bills don’t pay regular interest. Instead, the ‘interest’ you make is the difference between the price you paid to buy the T-bill and the amount the government pays you back.

As an example, imagine you buy a T-bill for $1,482.50. After 12 weeks, the government will return you $1,500. Boom, you’ve just made a profit of $17.50.

You can buy T-bills either through an online broker (like Public.com) or directly from the TreasuryDirect website.

So, what’s a T-bill ladder? It’s an investment strategy where you buy a mix of T-bills that mature at different times (like 3 months, 6 months, and 9 months from now). The beauty of this approach is that it provides a regular income and gives you the chance to buy new T-bills as old ones mature which helps if interest rates go up.

Is it a good idea? Sure, if you want a steady income with low risk. T-bills are backed by the US government, so they’re pretty safe. They are also a good guard against inflation. If inflation rises, interest rates usually do too, meaning you’ll get more income.

Now you might ask, do T-bills pay more than CDs (Certificates of Deposit)? Nope, usually CDs offer more ‘bang for your buck’, but T-bills have advantages like better liquidity (ability to cash out).

How about an example of a T-bill ladder? Say you have a big buy coming up but it’s a year away. You’ve got, let’s say, $15K ready now. You could leave it in a bank, but why not put it in T-bills and earn more than you would from a bank? You could buy a $5K T-bill each for 3 months, 6 months, and 9 months. As each one matures, you get cash flowing back in that you could reinvest.

If you’re thinking about bonds, you could also set up a bond ladder. However, purchasing individual bonds can be pricey and a bit complicated if you’re new to it. If that sounds like a headache, consider a bond fund. They’re like stocks or ETFs, and a professional takes care of the details for you. The downside? Fees.

As for retirement, T-bills and other treasury securities can be solid choices. They’re safe and provide a consistent stream of income, something you’ll appreciate when you stop working.

During times of inflation, T-bills can be good, but also consider higher-yielding investments like stocks or ETFs.

You can purchase T-bills from any Federal Reserve Bank, the Treasury Department, or at the TreasuryDirect website. While T-bills are considered very low risk by most standards, remember all investments come with some risk. The yields are generally low, so inflation might eat into your profits.

T-bills aren’t subject to local income tax, just federal—something to consider if you live where local tax rates are high.

Lastly, don’t forget diversification. Include different investment types in your portfolio to strike a good balance between safety and growth.

Now you’re equipped with the basics to climb the T-bill ladder! Don’t forget, online platforms like Public, Moomoo, or Webull offer lots of tools to support your journey. Give them a look!