How to buy T-Bills

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bgyt
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How to buy T-Bills

Post by bgyt » Thu Jul 12, 2018 6:59 pm

I have 100K sitting doing very little, just holding for retirement Bucket #1 in 3 years. I want to put this in T-Bills or Vanguard MM. How do I buy and redeem 3-month T-Bills over a period of the next 3 years? Do I just set up a Treasury Direct account and do this directly with the Treasury? Any lessons learned?

Also, is there a better Fixed Income place to park $$ that this?

ThriftyPhD
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Re: How to buy T-Bills

Post by ThriftyPhD » Thu Jul 12, 2018 7:16 pm

I haven't tried it with $100k, but I've found Treasury Direct easy to use. You can buy a 3-month T-Bill and set it to reinvest for up to two years (you can continue to edit it to reinvest for 2 years out from when you edit). If you buy in Treasury Direct, you can't redeem them until maturity. You should be able to transfer them out to a brokerage to sell if you want to redeem early by selling to another investor, but I have not done this. If sold early, you might not get the full amount back if interest rates have gone up and if there is a bid/ask spread.

I'm putting part of my E-fund into a laddered 3-month T-Bill, where 1/3 of my E-fund matures every month and gets reinvested. If I need the money, I just turn off reinvestment.

There are bond funds that effectively do the same thing, so that's something else you can consider. Less work to maintain, with the cost of convenience being the fund expenses.

bgyt
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Re: How to buy T-Bills

Post by bgyt » Thu Jul 12, 2018 8:11 pm

Are there any fees on Treasury Direct. If not it seems like a better option that VMMXX which takes 0.16% fee.

ThriftyPhD
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Re: How to buy T-Bills

Post by ThriftyPhD » Thu Jul 12, 2018 8:21 pm

No fees.

jacoavlu
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Re: How to buy T-Bills

Post by jacoavlu » Thu Jul 12, 2018 8:26 pm

Do you already have brokerage account somewhere? You can buy with no fees at Vanguard, E*TRADE, Schwab, etc. recurring investment is easier at Treasury Direct. Selling before maturity has to be at a brokerage. At a brokerage i would buy 6 month bills if you think a good chance you’ll hold to maturity

retfolio
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Re: How to buy T-Bills

Post by retfolio » Thu Jul 12, 2018 8:38 pm

recurring investment is easier at Treasury Direct
Fidelity has an auto-roll feature for T-bills.

jacoavlu
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Re: How to buy T-Bills

Post by jacoavlu » Thu Jul 12, 2018 9:00 pm

retfolio wrote:
Thu Jul 12, 2018 8:38 pm
recurring investment is easier at Treasury Direct
Fidelity has an auto-roll feature for T-bills.
Forgot this. This is a significant advantage over others.

Treasury Direct has advantage of being able to buy in $100 instead of $1000 increments. And you can enter future purchase orders much further in advance at TD. At brokerages you may only have about 5 days between announcement and auction for 6 month bills, and 1 day for one month bills. So you have to remember to login and place your order or you miss out for another week

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Jerry55
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Re: How to buy T-Bills

Post by Jerry55 » Thu Jul 12, 2018 10:18 pm

I like Treasury Direct as well. I've been using it over 10 years now.
I had an account back before the crash, when the inverted yield curve gave me ~5% on 3 and 6 month T-Bills.
After the crash, I moved into CD's that lasted up to a year and were still yielding 4-5%, but alas, that came to an end real quick.

I found out that my Legacy Treasury Direct account, not being used in 10 years was no longer available,
so I opened another one 2 months ago. I too have over 100K sitting in an online bank, but interest is taxable by the state.
I moved into 6 month T-Bills at just over 2% in June, and planned to invest every 3 months 25K, and roll it over until I stop.
No auto rollover, but one never knows, so 6/18, 9/18, 12/18 investment dates, etc.

I like it this way, coz it's just between the US Treasury and I with no middleman. Of course, the choice is yours ultimately.
Good Luck...
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

MikeG62
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Re: How to buy T-Bills

Post by MikeG62 » Fri Jul 13, 2018 7:35 am

bgyt wrote:
Thu Jul 12, 2018 6:59 pm
I have 100K sitting doing very little, just holding for retirement Bucket #1 in 3 years. I want to put this in T-Bills or Vanguard MM. How do I buy and redeem 3-month T-Bills over a period of the next 3 years? Do I just set up a Treasury Direct account and do this directly with the Treasury? Any lessons learned?

Also, is there a better Fixed Income place to park $$ that this?
I wrote this in response to a similar thread a few week ago...

viewtopic.php?f=1&t=248432&p=3983877&hi ... y#p3983877
Real Knowledge Comes Only From Experience

bgyt
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Re: How to buy T-Bills

Post by bgyt » Fri Jul 13, 2018 4:41 pm

Hmmm. OP here. I'm really on the fence here on going all in Vanguard or all in Treasury Direct. I like the auto rollover feature of TD but i know in a couple years I will want to use more of the other portfolio options of Vanguard. Plus it seems on here that everyone ends up at Vanguard. Any other thoughts to sway me?

indexonlyplease
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Re: How to buy T-Bills

Post by indexonlyplease » Fri Jul 13, 2018 4:50 pm

What is the advantage of treasury bills over cd with cd rates over 2 percent for / yr.

bost
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Re: How to buy T-Bills

Post by bost » Fri Jul 13, 2018 5:02 pm

I personally would avoid Treasury Direct. Their wording on what happens in case of an account hack is just WAY too scary for my liking. I think it's a case of the government regulating private banks and brokers to one standard and holding themselves to another.

nesdog
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Re: How to buy T-Bills

Post by nesdog » Fri Jul 13, 2018 5:18 pm

indexonlyplease wrote:
Fri Jul 13, 2018 4:50 pm
What is the advantage of treasury bills over cd with cd rates over 2 percent for / yr.
T-Bills are tax exempt at the state and local level.

I have been purchasing 6 months T-Bills via TD. Very easy to use and no fees.

trasmuss
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Re: How to buy T-Bills

Post by trasmuss » Sat Jul 14, 2018 3:34 am

If you are investing at least $50,000 I personally would look at the Vanguard US Treasury money market fund. Its expense ratio is low (lowest of all Vanguard money markets) and it is 100% treasury bills and therefore 100% state tax free. It certainly is much simpler than buying treasury bills on your own.

newdoc123
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Re: How to buy T-Bills

Post by newdoc123 » Sat Jul 14, 2018 6:57 am

i have never bought T bills.. but i was thought of buying from vanguard.. they have a link under investing CD .. there is an option to buy t bills.
I buy CD's from there.. has anyone had any issues?

newdoc123
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Re: How to buy T-Bills

Post by newdoc123 » Sat Jul 14, 2018 6:57 am

i have never bought T bills.. but i was thought of buying from vanguard.. they have a link under investing CD .. there is an option to buy t bills.
I buy CD's from there.. has anyone had any issues?

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welderwannabe
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Re: How to buy T-Bills

Post by welderwannabe » Sat Jul 14, 2018 7:11 am

newdoc123 wrote:
Sat Jul 14, 2018 6:57 am
i have never bought T bills.. but i was thought of buying from vanguard.. they have a link under investing CD .. there is an option to buy t bills.
I buy CD's from there.. has anyone had any issues?
While I usually buy my bills at Treasury Direct or Fidelity, I have bought bills at Vanguard. No issues. It works just fine.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

bgyt
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Re: How to buy T-Bills

Post by bgyt » Sat Jul 14, 2018 7:33 am

I think I'm just going to park it in VMMXX since it's yielding a solid 2% now with no effort and then try some treasuries on the site until I get comfortable with Vanguard.

MnD
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Re: How to buy T-Bills

Post by MnD » Sat Jul 14, 2018 8:22 am

bgyt wrote:
Sat Jul 14, 2018 7:33 am
I think I'm just going to park it in VMMXX since it's yielding a solid 2% now with no effort and then try some treasuries on the site until I get comfortable with Vanguard.
That's a good idea to just keep this at your brokerage versus opening up yet another account. VMMXX is a great MM fund and by all means try some t-bill purchases at auction through Vanguard. I just placed an order for the Monday auction. You can also consider purchasing some brokered CD's. The tax-exempt money market is also something to consider depending on your tax bracket and current yields.

At a brokerage you have multiple acceptable options for cash now that rates are off the floor and personally I'm done with seperate "high yield" bank accounts or things like Treasury Direct.

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FIREchief
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Re: How to buy T-Bills

Post by FIREchief » Sat Jul 14, 2018 12:56 pm

bgyt wrote:
Fri Jul 13, 2018 4:41 pm
Plus it seems on here that everyone ends up at Vanguard.
Hang around here a bit more and I think you'll find that this is not at all true.

To answer your initial question, I would highly recommend a brokerage house over treasury direct. Fidelity is great for this.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

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triceratop
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Re: How to buy T-Bills

Post by triceratop » Sat Jul 14, 2018 12:59 pm

bgyt wrote:
Fri Jul 13, 2018 4:41 pm
Hmmm. OP here. I'm really on the fence here on going all in Vanguard or all in Treasury Direct. I like the auto rollover feature of TD but i know in a couple years I will want to use more of the other portfolio options of Vanguard. Plus it seems on here that everyone ends up at Vanguard. Any other thoughts to sway me?
I started at Vanguard and now do not even have an account there. Schwab is a nice place for banking and allows commission-free Treasury trades, including auction participation.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

bgyt
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Re: How to buy T-Bills

Post by bgyt » Sat Jul 14, 2018 1:24 pm

Is there any concerns with Vanguard I should be aware...

bondsr4me
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Re: How to buy T-Bills

Post by bondsr4me » Sat Jul 14, 2018 1:28 pm

welderwannabe wrote:
Sat Jul 14, 2018 7:11 am
newdoc123 wrote:
Sat Jul 14, 2018 6:57 am
i have never bought T bills.. but i was thought of buying from vanguard.. they have a link under investing CD .. there is an option to buy t bills.
I buy CD's from there.. has anyone had any issues?
While I usually buy my bills at Treasury Direct or Fidelity, I have bought bills at Vanguard. No issues. It works just fine.
+1

Agree.

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FIREchief
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Re: How to buy T-Bills

Post by FIREchief » Sat Jul 14, 2018 1:38 pm

bgyt wrote:
Sat Jul 14, 2018 1:24 pm
Is there any concerns with Vanguard I should be aware...
There have been a lot of recent threads regarding VG customer service. You may wish to review some of those.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.

dia
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Re: How to buy T-Bills

Post by dia » Sat Jul 14, 2018 7:38 pm

MnD wrote:
Sat Jul 14, 2018 8:22 am
bgyt wrote:
Sat Jul 14, 2018 7:33 am
I think I'm just going to park it in VMMXX since it's yielding a solid 2% now with no effort and then try some treasuries on the site until I get comfortable with Vanguard.
That's a good idea to just keep this at your brokerage versus opening up yet another account. VMMXX is a great MM fund and by all means try some t-bill purchases at auction through Vanguard. I just placed an order for the Monday auction. You can also consider purchasing some brokered CD's. The tax-exempt money market is also something to consider depending on your tax bracket and current yields.

At a brokerage you have multiple acceptable options for cash now that rates are off the floor and personally I'm done with seperate "high yield" bank accounts or things like Treasury Direct.
You mention the word "auction" for Tbills can you explain, doing a TON of reading on Tbills but confused on how they work.
What, Me Worry? --Alfred E. Neuman


GrowthSeeker
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Re: How to buy T-Bills

Post by GrowthSeeker » Sat Jul 14, 2018 8:15 pm

Vanguard Treasury Money Market Fund ..(VUSXX) (exp .09%) SEC 1.84%
Vanguard Prime Money Market Fund .... (VMMXX) (exp .16%) SEC 2.05%

I guess if your state tax is about 10% then 1.84% with no state tax is equal to 2.05% with state tax.
And I guess VUSXX is a tiny bit safer than VMMXX.
But assuming a state tax lower than 10%, what would be the advantage of VUSXX over VMMXX?
Just because you're paranoid doesn't mean they're NOT out to get you.

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welderwannabe
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Re: How to buy T-Bills

Post by welderwannabe » Sat Jul 14, 2018 9:00 pm

dia wrote:
Sat Jul 14, 2018 7:38 pm
You mention the word "auction" for Tbills can you explain, doing a TON of reading on Tbills but confused on how they work.
It sounds worse than it is. It isn't like bidding on a Teddy Ruxpin on Ebay where you have to constantly bid, raise your bid, and watch.

You go to your brokerage and put in an order for the auction the next week. You will become a 'noncompetitive' bidder in the auction meaning that you are agreeing to buy the TBill for the 'high rate', which is the rate that all accepted bids get. The other type of bidder is a 'competitive' bidder, which is a different process and is generally limited to institutional investors (millions$+ of purchases) .

Tbills are zero coupon bonds and are therefore bought at a discount, so your cost for each $1,000 bond will be something less than $1,000. The difference between the price you pay and $1,000 is your 'interest'.

For example, on 6/25 I entered an order at Fidelity for a $1,000 28-day T-Bill. The auction happened on 6/26 and the price determined at auction by the competitive bidding process was $998.62. As a 'non competitive' bidder, I automatically get my bond for that price. $998.62 was taken out of my money market account automatically on the settlement date of 6/28. On 7/26 the 28 day bill will mature and $1,000 will be deposited back into my Fidelity money market and I will have earned the difference of $1,000 - $998.62 or $1.38 of interest.

It is a really easy process. The only 'gotcha' is that you can't be sure of the actual price (aka interest) until the day the auction happens.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Kevin M
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Re: How to buy T-Bills

Post by Kevin M » Sat Jul 14, 2018 9:05 pm

GrowthSeeker wrote:
Sat Jul 14, 2018 8:15 pm
Vanguard Treasury Money Market Fund ..(VUSXX) (exp .09%) SEC 1.84%
Vanguard Prime Money Market Fund .... (VMMXX) (exp .16%) SEC 2.05%

I guess if your state tax is about 10% then 1.84% with no state tax is equal to 2.05% with state tax.
<snip>
If you itemize and fully deduct state taxes on Schedule A (e.g., SALT not capped), then at 1.84%, taxable-equivalent yield (TEY) is 2.00% ( = 1.84% / (1 - 8%) ). However, if you don't deduct state taxes on Schedule A, then your federal marginal tax rate affects your TEY for Treasuries. At my marginal federal and state tax rates of 27% and 8%, not itemizing, TEY of VUSXX is 2.07% ( = 1.84% * (1-27%) / (1 - 35%) ), so just a smidge higher thhan VMMXX.

If you itemize and fully deduct state taxes on Schedule A, the tax exemption is less valuable, since you're already getting the deduction for state income tax, so the Treasury TEY is lower.

If you're OK with a little term risk, then individual Treasuries bought at auction probably will provide a higher return--it depends how fast the MM yields increase.

Kevin
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bgyt
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Re: How to buy T-Bills

Post by bgyt » Sat Jul 14, 2018 9:34 pm

The last 3 posts are outstanding. Thank you.

dia
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Re: How to buy T-Bills

Post by dia » Sun Jul 15, 2018 6:19 am

welderwannabe wrote:
Sat Jul 14, 2018 9:00 pm
dia wrote:
Sat Jul 14, 2018 7:38 pm
You mention the word "auction" for Tbills can you explain, doing a TON of reading on Tbills but confused on how they work.
It sounds worse than it is. It isn't like bidding on a Teddy Ruxpin on Ebay where you have to constantly bid, raise your bid, and watch.

You go to your brokerage and put in an order for the auction the next week. You will become a 'noncompetitive' bidder in the auction meaning that you are agreeing to buy the TBill for the 'high rate', which is the rate that all accepted bids get. The other type of bidder is a 'competitive' bidder, which is a different process and is generally limited to institutional investors (millions$+ of purchases) .

Tbills are zero coupon bonds and are therefore bought at a discount, so your cost for each $1,000 bond will be something less than $1,000. The difference between the price you pay and $1,000 is your 'interest'.

For example, on 6/25 I entered an order at Fidelity for a $1,000 28-day T-Bill. The auction happened on 6/26 and the price determined at auction by the competitive bidding process was $998.62. As a 'non competitive' bidder, I automatically get my bond for that price. $998.62 was taken out of my money market account automatically on the settlement date of 6/28. On 7/26 the 28 day bill will mature and $1,000 will be deposited back into my Fidelity money market and I will have earned the difference of $1,000 - $998.62 or $1.38 of interest.

It is a really easy process. The only 'gotcha' is that you can't be sure of the actual price (aka interest) until the day the auction happens.
I have been reading about TBills for days now, countless hours. I think I read every posting Bogleheads had to offer and everywhere else. This is without a doubt-- the BEST, simple, straightforward explanation I have read. THANK YOU very much. I get it now. Finally.
What, Me Worry? --Alfred E. Neuman

MnD
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Re: How to buy T-Bills

Post by MnD » Sun Jul 15, 2018 8:18 am

One detail - at brokerages the ability to enter an order to buy a new T-bill at auction is only enabled between the time of the announcement and some deadline right before the auction. So right now you can see and place orders for 13, 26, and 52 week t-bills and 10-year TIPS, because those are the Treasuries that are in the window between announcement and auction. The announcement for 4-week bills isn't until tomorrow so you can't place that order yet.

http://www.wsj.com/mdc/public/page/2_30 ... offer.html

nlecaros
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Re: How to buy T-Bills

Post by nlecaros » Sun Jul 15, 2018 2:46 pm

bost wrote:
Fri Jul 13, 2018 5:02 pm
I personally would avoid Treasury Direct. Their wording on what happens in case of an account hack is just WAY too scary for my liking. I think it's a case of the government regulating private banks and brokers to one standard and holding themselves to another.
I have a TreasuryDirect account, so this is interesting to me. Can you elaborate on what wording you found scary?

Thanks

bost
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Re: How to buy T-Bills

Post by bost » Sun Jul 15, 2018 9:45 pm

TreasuryDirect seems to have a fair bit of security features on the login.

However, they also have this:
5. YOUR ACCOUNT
If you use this site, you are responsible for maintaining the confidentiality of your account, password and for restricting access to your computer. You also agree to assume responsibility for all activities that occur under any account or password that you maintain for electronic commerce with Treasury or Fiscal Service.
Also:
CFR § 363.17 Who is liable if someone else accesses my TreasuryDirect ® account using my password?
You are solely responsible for the confidentiality and use of your account number, password, and any other form(s) of authentication we may require. We will treat any transactions conducted using your password as having been authorized by you. We are not liable for any loss, liability, cost, or expense that you may incur as a result of transactions made using your password.
Meanwhile private banks are regulated with strict limitations of liability, as long as timely disclosure is made.
https://www.law.cornell.edu/cfr/text/12/1005.6

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