posted: Dec. 24, 2005 @ 9:50p
dolmar said:
T-Bills are not a good investment for anyone who is subject to US income tax. Largest buyer of T-Bills are goverments and non us reseidents and there is a reason for it. They are parking there money here because our interest rates are higher than there own country. For you to be able to get a higher yeild over what FDIC account pays you have to go out 6 months min and if you do you can get short term munis which pay considerable more if you are subject to US income taxes so why even bother with T-Bills if you dont need liquidity. Most Muni are considered to be almost as safe as T-Bills.
6 months Muni today are paying 3.20-3.50% which puts your yeild close or above 6% depending on your marginal tax bracket.
There are so many things wrong with what you said.
"T-bills are not a good investment for anyone who is subject to US income tax" Huh????? The yields I quoted are current yields and at or higher any yield quoted elsewhere in the thread, and have the advantage of being exempt from state income tax. If you live in a state with no income tax, then you might be able to make a stronger case for a bank deposit. That would also hurt your muni argument as well, btw.
Yes, foreigners have kept yields artifically low but that is at the long end of the curve(10-30 years), a completely different investment than what we are talking about. Besides you contradict yourself, by noting that interest rates in the U.S. are 'higher than any other country'
Yes, you do have to go out 6 months to get comparable yields. However, with a minimal effort, you can 'ladder' your bill investments so that some come due at any given interval(they are issued weekly, so take your pick). This also mitigates interest rate risk. And if you need the money, just don't reinvest some of the bills. You can also sell them if you need to at nominal commission.
Treasury Direct accounts have minimal fees($25/year on accounts over $100k, none for less), no commissions, and only invest in US Treasury securities. It is about a 'vanilla' and low risk investment that you can make.
Your argument about muni investments are flawed. First, they would be subject to brokerage commissions, not to mention spreads and liquidity. Second, tax deductibility can vary according to state, some states will only exempt interest from their own munis, for example. On the federal level, there may be AMT issues, also certain types of munis are not exempt. Third, your statement that most Muni are considered to be almost as safe as t-bills is incorrect. You have geographic risk, as well as political risk, last time I checked states and cities could not print money to fix their problems!
If you live in a state like California, with high marginal rates and a very active and liquid muni market, munis may make sense if you are willing to do some legwork. But it would take a lot more work than a simple t-bill laddering strategy. I'm not saying it's not worth it, what I am saying is that you can improve on these checking account strategies that so many threads are devoted to, with minimal effort and minimal additional risk.
