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  • Writer's pictureHugh F. Wynn

Treasury Bills: The Safest Investment in the World

In the midst of this roller coaster we call life, it's refreshing to encounter something that's a safe bet. Especially when it involves your hard-earned cash. So how do Treasury bills fit that bill? Let's discuss.

What's a T-bill?

Treasury bills, also called T-Bills, are highly liquid and backed by the full faith and credit of the U.S. Government. They offer the shortest maturities of any government debt and come in terms of 4, 8, 13, 26 and 52 weeks.

T-bills do not make periodic interest payments. Instead, they are sold at a discount to their face value. For example, if an investor bought a $1,000 T-bill currently yielding 5%, the U.S. Treasury would sell it at a discounted price of $950. At maturity, the investor would receive $1,000, the $50 representing earned interest.

Stocks vs. T-bills

Over time, some stocks outperform T-Bills, but most don’t. And why is that the case? In my opinion, John Bogle, author, founder of Vanguard and inventor of today’s popular index fund, has put more money in the pockets of average small investors over the past 50 years than any other investment advisor. And he didn’t achieve that Herculean task by suggesting they buy nothing but T-bills.

My favorite of Bogle’s many prescient and popular quotes¹ is:

“Don’t look for the needle in the haystack. Just buy the haystack.”

That’s one of the best bits of advice a novice investor looking to build a nice retirement nest egg can follow during the early stages of his or her working career. In short, dare to be average and patiently build an investment portfolio around a highly diversified S&P 500 or Total Stock Market Index Fund comprised of America’s top companies. Yeah, you’ll find some nags among them but also a stable full of hard charging thoroughbreds.


Haystack Logic

What supports my – and many others’ – opinion of the validity of Bogle’s haystack homily is an exhaustive study that also answers the question: Do stocks outperform Treasury bills? According to research by Hendrik Bessembinder, professor and the Francis J. and Mary B. Labriola Endowed Chair in Competitive Business at ASU’s W. P. Carey School of Business, 96% of U.S. common stocks that traded on the New York and American stock exchanges and the Nasdaq since 1926 collectively merely matched one-month T-bills.


Not surprisingly, the Bessembinder study found that the best returns derive from very few stocks overall. Case in point, just 86 out of many hundreds of stocks accounted for $16 trillion in wealth creation - half of the stock market total - over the past 90 years. One hundred percent of the wealth creation can be attributed to the 1,000 top-performing stocks. Those countless other business misadventures laid waste to the fortunes of many.

Big Bad Secret 

This Bessembinder study also tells you a big bad secret about market timing buttressed by Boston research firm Dalbar's report, "Quantitative Analysis of Investor Behavior," which revealed that investors who remained fully invested in the S&P 500 Index between 1995 and 2014, would have earned a 9.85% annualized return.

However, if those same investors had missed a mere 10 of the best days in the market, their return would have been 5.1%. Brings to mind the fact that  many of the largest upswings in the market occur during those volatile periods when so many jittery investors join the thundering herd and flee the market…an unfortunate “timing of the market” that seems to be consistently repeated time and again.


Why do I repeat what’s really old news? Consistent profitable timing of the market is impossible, particularly for those who don’t have the time or background to research it…or the inclination. Most small investors should find it fruitful to simply earn the average yield the total market provides over time. It works if an investor buys the market using index funds (quality and diversification) and employs the necessary patience to stay with such an approach through thick and thin.

Try it. You might like it.

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