Emergency Fund T-Bill Ladder Construction

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Watson15
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Joined: Fri Jun 03, 2022 10:13 am

Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
RetiredAL
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Re: Emergency Fund T-Bill Ladder Construction

Post by RetiredAL »

Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
I've been buying 52wk T-Bills spread out quarterly. When I started this, I bought some shorter duration ones to get to the rotation desired.

I do not have a dedicated E-fund. Any readily accessible Fixed Income holding could be quickly used tapped necessary.

Do note that Broker CD's cannot be broken the same way a Brick and Mortar CD can, thus they are a lot less liquid than Brokered T-bills.
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Raspberry-503
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Re: Emergency Fund T-Bill Ladder Construction

Post by Raspberry-503 »

I'm not sure what you mean? Do you mean buy one lit that auto-teinvests every 1 month, one lit that auto-teinvests every 2 and one that auto-teinvests every 3?
If so there is a difference in that you will be mixing tiles from different durations, whereas after the first 3 months the ladder will be entirely composed of 3-month treasuries and will be getting the 3-month yield
Today that yield curve is inverted but usually hr longer durations will get you higher yields.
Hope this helps if I understood the question properly.
increment
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Re: Emergency Fund T-Bill Ladder Construction

Post by increment »

Your 4-week Treasury can be autorolled into another 4-week Treasury, not into a 13-week one. Your 8-week Treasury can be autorolled into another 8-week Treasury, not into a 13-week one. So if you want a ladder of three 13-week Treasurys in the end, you will have to do some kind of maintenance after the first four weeks and after the first eight weeks.
Tom_T
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Re: Emergency Fund T-Bill Ladder Construction

Post by Tom_T »

You could also buy a four-week bill at auction each week for the next four weeks, with auto-roll. Then, every week, you'd have a bill maturing, and you can decide to let it auto-roll or not, or sell part of it, etc.
gavinsiu
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Re: Emergency Fund T-Bill Ladder Construction

Post by gavinsiu »

I think people tend to play around with different ladder construction to get the type of yield curve that they want. They might extend the ladder to lock in a rate or shorten it if the yield is higher on the short end.

Keep in mind that some maturity length can't be autoroll in Fidelity for some reason.

I tend to feel that even though Tbill are as liquid as they get, they are not as liquid as Money Market. I usually a chunk of MM that can be access immediately and then some T-bills for something with a less urgent need.
Doc7
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Re: Emergency Fund T-Bill Ladder Construction

Post by Doc7 »

Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.

What are the benefits over using SGOV or FDLXX if avoiding an ETF route?
Topic Author
Watson15
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Re: Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

Raspberry-503 wrote: Mon May 13, 2024 9:24 am I'm not sure what you mean? Do you mean buy one lit that auto-teinvests every 1 month, one lit that auto-teinvests every 2 and one that auto-teinvests every 3?
If so there is a difference in that you will be mixing tiles from different durations, whereas after the first 3 months the ladder will be entirely composed of 3-month treasuries and will be getting the 3-month yield
Today that yield curve is inverted but usually hr longer durations will get you higher yields.
Hope this helps if I understood the question properly.
In other words, I’m comparing two ladder options:

1. 3 lots of 3mo T-Bills staggered 1mo apart

Vs.

2. 1 lot of 1mo, 1 lot of 2mo, 1 lot of 3mo

In both ladders at least 1/3 of the lots are maturing (option 2 could have more when the 1mo and 2 or 3mo maturities overlap).

I’m partial to the 2nd option because it’s easier to get started. Just trying to understand the trade offs.
Topic Author
Watson15
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Re: Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

Doc7 wrote: Mon May 13, 2024 10:22 am
Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.

What are the benefits over using SGOV or FDLXX if avoiding an ETF route?
Good question: I’ve been in FDLXX. I think a couple benefits would be 1) slightly higher yield, and 2) fully state tax exempt. I think FDLXX was 90-something % exempt last year.
dcabler
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Re: Emergency Fund T-Bill Ladder Construction

Post by dcabler »

Tom_T wrote: Mon May 13, 2024 9:31 am You could also buy a four-week bill at auction each week for the next four weeks, with auto-roll. Then, every week, you'd have a bill maturing, and you can decide to let it auto-roll or not, or sell part of it, etc.
It wasn't for an emergency fund, but I did something like this in the past. I had 2 lots of 4 week T-Bills offset by 2 weeks, so I was never more than a couple of weeks away from the cash.

Cheers.
aerosurfer
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Re: Emergency Fund T-Bill Ladder Construction

Post by aerosurfer »

dcabler wrote: Mon May 13, 2024 10:54 am
Tom_T wrote: Mon May 13, 2024 9:31 am You could also buy a four-week bill at auction each week for the next four weeks, with auto-roll. Then, every week, you'd have a bill maturing, and you can decide to let it auto-roll or not, or sell part of it, etc.
It wasn't for an emergency fund, but I did something like this in the past. I had 2 lots of 4 week T-Bills offset by 2 weeks, so I was never more than a couple of weeks away from the cash.

Cheers.
That what i do currently. I have 4 eight week T-bills spread 2 weeks apart each, that auto roll. So there is always something near auto renewal should i need the money. It did take a while to get them set up properly on the correct dates/auctions.
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Raspberry-503
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Re: Emergency Fund T-Bill Ladder Construction

Post by Raspberry-503 »

Watson15 wrote: Mon May 13, 2024 10:44 am
Raspberry-503 wrote: Mon May 13, 2024 9:24 am I'm not sure what you mean? Do you mean buy one lit that auto-teinvests every 1 month, one lit that auto-teinvests every 2 and one that auto-teinvests every 3?
If so there is a difference in that you will be mixing tiles from different durations, whereas after the first 3 months the ladder will be entirely composed of 3-month treasuries and will be getting the 3-month yield
Today that yield curve is inverted but usually hr longer durations will get you higher yields.
Hope this helps if I understood the question properly.
In other words, I’m comparing two ladder options:

1. 3 lots of 3mo T-Bills staggered 1mo apart

Vs.

2. 1 lot of 1mo, 1 lot of 2mo, 1 lot of 3mo

In both ladders at least 1/3 of the lots are maturing (option 2 could have more when the 1mo and 2 or 3mo maturities overlap).

I’m partial to the 2nd option because it’s easier to get started. Just trying to understand the trade offs.
In one ladder you have "at least" a month maturing (some months you have 3) in the other ladder you have exactly one month maturing, as you point out. As long as you don't think you need more than 1 month at aa time, it doesn't matter (and if it does, Murphy's law still says you'll have to wait 2 months when the need arises, or at least sell some rungs at market value before maturity)
So I did understand the question, and the difference is going to be in the yields that you get, since each Bill will have its own return based on its duration. Ladders are designed to take advantage of the slightly higher yield of longer durations without locking up all your money at once. When the yield curves are inverted, the 3 different batches may return a hair more, until the situation becomes more "normal"
chaser
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Re: Emergency Fund T-Bill Ladder Construction

Post by chaser »

Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
Focusing on the "emergency fund" aspect, one advantage of staggering is that if you do have an actual emergency where you need the cash, you will always have a portion of your T-Bills maturing within a shorter amount of time. That reduces the chances you will be forced to sell your T-Bills on the secondary market.

One reason this could matter is you might find the liquidity might not be good enough. Something like this happened last summer, where people on this forum reported they were having trouble selling their T-bills because their brokerages suddenly increased the minimum lot size to a high quantity. (I actually haven't checked to see if the quantities have since been lowered.)

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Topic Author
Watson15
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Joined: Fri Jun 03, 2022 10:13 am

Re: Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

Raspberry-503 wrote: Mon May 13, 2024 1:09 pm
Watson15 wrote: Mon May 13, 2024 10:44 am
Raspberry-503 wrote: Mon May 13, 2024 9:24 am I'm not sure what you mean? Do you mean buy one lit that auto-teinvests every 1 month, one lit that auto-teinvests every 2 and one that auto-teinvests every 3?
If so there is a difference in that you will be mixing tiles from different durations, whereas after the first 3 months the ladder will be entirely composed of 3-month treasuries and will be getting the 3-month yield
Today that yield curve is inverted but usually hr longer durations will get you higher yields.
Hope this helps if I understood the question properly.
In other words, I’m comparing two ladder options:

1. 3 lots of 3mo T-Bills staggered 1mo apart

Vs.

2. 1 lot of 1mo, 1 lot of 2mo, 1 lot of 3mo

In both ladders at least 1/3 of the lots are maturing (option 2 could have more when the 1mo and 2 or 3mo maturities overlap).

I’m partial to the 2nd option because it’s easier to get started. Just trying to understand the trade offs.
In one ladder you have "at least" a month maturing (some months you have 3) in the other ladder you have exactly one month maturing, as you point out. As long as you don't think you need more than 1 month at aa time, it doesn't matter (and if it does, Murphy's law still says you'll have to wait 2 months when the need arises, or at least sell some rungs at market value before maturity)
So I did understand the question, and the difference is going to be in the yields that you get, since each Bill will have its own return based on its duration. Ladders are designed to take advantage of the slightly higher yield of longer durations without locking up all your money at once. When the yield curves are inverted, the 3 different batches may return a hair more, until the situation becomes more "normal"

Thanks for the explanation— this makes sense
Topic Author
Watson15
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Joined: Fri Jun 03, 2022 10:13 am

Re: Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

chaser wrote: Mon May 13, 2024 3:17 pm
Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
Focusing on the "emergency fund" aspect, one advantage of staggering is that if you do have an actual emergency where you need the cash, you will always have a portion of your T-Bills maturing within a shorter amount of time. That reduces the chances you will be forced to sell your T-Bills on the secondary market.

One reason this could matter is you might find the liquidity might not be good enough. Something like this happened last summer, where people on this forum reported they were having trouble selling their T-bills because their brokerages suddenly increased the minimum lot size to a high quantity. (I actually haven't checked to see if the quantities have since been lowered.)

viewtopic.php?p=7356669
viewtopic.php?p=7364179
Yes, perhaps a money market fund would be better as an emergency fund. Something to consider.
chaser
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Joined: Fri May 16, 2008 5:00 pm

Re: Emergency Fund T-Bill Ladder Construction

Post by chaser »

Watson15 wrote: Mon May 13, 2024 7:45 pm
chaser wrote: Mon May 13, 2024 3:17 pm
Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
Focusing on the "emergency fund" aspect, one advantage of staggering is that if you do have an actual emergency where you need the cash, you will always have a portion of your T-Bills maturing within a shorter amount of time. That reduces the chances you will be forced to sell your T-Bills on the secondary market.

One reason this could matter is you might find the liquidity might not be good enough. Something like this happened last summer, where people on this forum reported they were having trouble selling their T-bills because their brokerages suddenly increased the minimum lot size to a high quantity. (I actually haven't checked to see if the quantities have since been lowered.)

viewtopic.php?p=7356669
viewtopic.php?p=7364179
Yes, perhaps a money market fund would be better as an emergency fund. Something to consider.
Just an idea, not advocating you should do this, but if you think 1 rung of your ladder is large enough to cover the most immediate of emergencies that could come up in a month, then you could keep an emergency credit card with a limit that can cover that rung. Then if an emergency did hit, you could use the credit card. You'll have about a month until the credit card is due, which should be enough time for the next rung to mature, and you can pay off the credit card completely.
Topic Author
Watson15
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Joined: Fri Jun 03, 2022 10:13 am

Re: Emergency Fund T-Bill Ladder Construction

Post by Watson15 »

chaser wrote: Mon May 13, 2024 10:45 pm
Watson15 wrote: Mon May 13, 2024 7:45 pm
chaser wrote: Mon May 13, 2024 3:17 pm
Watson15 wrote: Mon May 13, 2024 8:53 am I have an emergency fund at Fidelity, and I plan to use their auto-roll feature to build a simple T-Bill ladder with 3 lots.

I’ve seen some folks propose staggering 3mo Treasuries over 3 months, so one lot is maturing each month. Is there any functional difference from just buying 1, 2, and 3mo Treasuries? This would be easier since I could just do it asap vs waiting to stagger the 3mo auctions.
Focusing on the "emergency fund" aspect, one advantage of staggering is that if you do have an actual emergency where you need the cash, you will always have a portion of your T-Bills maturing within a shorter amount of time. That reduces the chances you will be forced to sell your T-Bills on the secondary market.

One reason this could matter is you might find the liquidity might not be good enough. Something like this happened last summer, where people on this forum reported they were having trouble selling their T-bills because their brokerages suddenly increased the minimum lot size to a high quantity. (I actually haven't checked to see if the quantities have since been lowered.)

viewtopic.php?p=7356669
viewtopic.php?p=7364179
Yes, perhaps a money market fund would be better as an emergency fund. Something to consider.
Just an idea, not advocating you should do this, but if you think 1 rung of your ladder is large enough to cover the most immediate of emergencies that could come up in a month, then you could keep an emergency credit card with a limit that can cover that rung. Then if an emergency did hit, you could use the credit card. You'll have about a month until the credit card is due, which should be enough time for the next rung to mature, and you can pay off the credit card completely.
Yeah, good idea. I think I’m already covered there.
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