Help me overcome market jitters

Dear Chuck,

We want to limit our exposure in the stock market due to its volatility of late. What are your thoughts on T-bills?

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Market Jitters

Dear Market Jitters,

First, “market jitters” is an actual term used to describe “an elevated state of anxiety and perceived uncertainty about the economy or a specific asset market,” according to Investopedia.

“Uncertainty in response to changing economic conditions, economic shocks, or negative market psychology all play a role. Market jitters can induce a flight to safety into low-risk assets, but can also be advantageous for investments and trading strategies that benefit from high volatility.”

Essentially, fear of loss causes people to take action by moving out of the market or to safer investments, just as you are describing.

Second, I am not qualified to give investment advice. I hope you have a professional advisor or advisors/counselors that you consult before making investment decisions. However, I can offer some general information as well as biblical principles to help guide you, as one source of counsel.

The Bible makes it clear that we do not know the future; therefore, we should minimize our investment risk through diversification into different assets or groups of assets.

“Give a portion to seven, or even to eight, for you know not what disaster may happen on earth” (Ecclesiastes 11:2 ESV).

I take this verse to advocate for having no more than 12–15% of your investment in a single asset or sector. So, I would recommend that you move only a portion of your investments to low-risk/low-yield assets.

So what about T-bills?

Most people are acquainted with high-yield savings accounts and CDs, but another option is T-bills (Treasury bills), which the U.S. Treasury Department backs. They are a good option if you want shorter terms than CDs or live in a high-tax state. T-bills are loans made to the government — short-term debt obligations issued and backed by the government.

Elon Musk has described short-term T-bills as a “no-brainer.” At the end of the second quarter of 2024, Berkshire Hathaway (where Warren Buffet is chairman and CEO) held $234.6 billion in short-term investments in treasury bills. That is $130 billion higher than what the company owned at the end of 2023 and surpassed The Federal Reserve’s holdings of $195.3 billion. Last May, Buffett called them “the safest investment there is.”

T-bills offer stability if a portfolio consists of any high-risk investments. They are a safe place to hold extra cash. Low-risk investments are usually highly liquid. However, you pay for the safety at lower rates of return. 

T-bills come in short-term lengths of 4, 6, 8, 13, 17, 26, and 52 weeks. Auctioned off at a discount (face value), they are redeemed for the full amount at maturity. The “interest” earned is the difference in purchase price and the value at maturity. You can either redeem the money or reinvest it. If buying directly from the Treasury, the redemption value is deposited in your Certificate of Indebtedness (C of I) or your designated bank account the day it matures, unless directed to reinvest.

T-bills can be purchased electronically from the Treasury, a bank, a broker, or another financial institution. The Treasury and large national brokerage firms offer them with zero commission. The minimum purchase from the Treasury is $100 and in increments of that amount. The “interest” rate is fixed at auction. Returns are proportional to the length of the bill.

Earnings are subject to federal income taxes but are exempt at state and local levels. Earnings must be reported the year they mature or when sold prior to maturity. You can see the daily treasury bill rates here.

What are the pros?

• High liquidity.
• Low minimum investment.
• Safe way to diversify a portfolio.
• Tax-exempt at state and local levels.
• Short-term investment of 52 weeks or less.
• Interest rates competitive with high-yield savings.
• Backed by the credit of the US government (not the FDIC).

What are the cons?

• Lower risk = lower returns.
• Taxable at the federal level.
• Limited to short-term investing.
• Subject to inflation and fluctuating interest rates.
• Prices influenced by monetary policy, macroeconomic conditions, and overall demand/supply of the treasuries.
• Regular management to reinvest at maturity unless done automatically.

How to ladder T-bills

A T-bill ladder is a systematic, structured approach to low-risk investing. Staggering maturity dates allows investors to capture rising interest rates to potentially increase yield. T-bills are easily accessed at maturity and can be reinvested in higher-yielding T-bills or allocated elsewhere. Laddering is a method of diversifying maturity dates and creating a consistent income stream.

Decide how much you can invest. Determine your timeframe by forecasting upcoming needs, like the down payment for a house, purchasing a vehicle, or planning a wedding. The following example works well in situations of rising interest rates; rates are typically higher the longer the T-bill. When rates drop, you can cash out at maturity or reinvest at lengths that optimize your return. Careful maintenance is required to adjust a ladder when the market shifts. Regular use of organized reminders is essential.

Example: You have $20,000 to invest and want five different rungs or maturity dates on your ladder. You might purchase:

• A 4-week bill that is $4,000 at maturity and then reinvested in a 26-week bill.
• An 8-week bill that is 4,000 at maturity and then reinvested in a 26-week bill.
• A 13-week bill that is $4,000 at maturity and then reinvested in a 26-week bill.
• A 17-week bill that is $4,000 at maturity and then reinvested in a 26-week bill.
• A 26-week bill that is $4,000 at maturity and then reinvested in a 26-week bill.

I hope you have learned enough to assist you with your decision. I don’t think it is a good idea to jump in and out of the market. It is far better to make informed choices and stay the course over time. Remember:

“The plans of the diligent lead surely to abundance, but everyone who is hasty comes only to poverty” (Proverbs 21:5 ESV).

Do you want more tools and tips on financial stewardship? Are you interested in receiving ministry updates from around the world? Sign up to receive the Crown Newsletter emails by using the form on the homepage at Crown.org.