T Bills, short for treasury bills, are ultra-short-term treasury bonds backed by the full faith and credit of the U.S. government. In this video I'll explain what exactly T bills are, how they work, and why you might want to buy them. // TIMESTAMPS: 00:00 - Intro 00:12 - What are T Bills? 00:58 - Why Buy T Bills? 01:22 - Performance of T Bills 01:53 - How do T Bills work? 02:17 - T Bills Taxation 02:27 - T Bills and Inflation 02:45 - T Bills vs. Stocks 02:59 - How to Buy T Bills // SUMMARY: T Bills are just ultra-short-term bonds from the U.S. government. These short bonds with maturities of less than a year are called bills. The US Treasury issues T bills to raise cash to fund the federal government's spending. Since they're issued by the Treasury, naturally we call them treasury bills, or T bills for short. Because they're backed by the full faith and credit of the U.S. government, T bills possess no liquidity risk, credit risk, or default risk inherent of corporate bonds. As such, T Bills are quite literally the “risk-free asset,” as they're called, and they pay what we refer to as the "risk-free rate," to which other assets are compared. These special, seemingly boring bonds are considered a “cash equivalent.” When we say part of the portfolio is in cash, we usually mean T bills, not plain dollar bills losing to inflation. T Bills had an annualized historical return over the last century of 3.32%. The average rate of inflation over that period was 3.02%, which means a real return - or return adjusted for inflation - of 0.3%. T bills are usually going to be paying slightly more than a plain savings account or money market fund. How do T bills work? T Bills are sold at a discount and don't pay a coupon like most bonds, so they simply return their face value at maturity. The difference between your purchase price and that face value is your “interest.” The effective interest from T bills is federally taxable as income but is exempt from state and local taxes. This makes T bills particularly attractive for those in states with high income tax rates. T Bills are also a decent inflation hedge. T Bills essentially kept pace with inflation during the double-digit inflation of the 1970’s in the U.S.! T Bills are a great place to park excess cash to be used for near-future liabilities so that you don't lose that purchasing power to inflation. This might sound crazy, but there have also been extended periods where T Bills outperformed the stock market: the 15 years from 1929 to 1943, the 17 years from 1966-82, and the 13 years from 2000-12. You can buy T bills directly from the US Treasury via their website TreasuryDirect.gov, indirectly through most major brokerages like Fidelity or Schwab, or through ETFs that hold and roll T-bills for you. I'd argue that last one is probably the easiest logistically. Read the blog post here: https://www.optimizedportfolio.com/t-bill-etfs/ #tbills #treasurybills #treasurybonds // INVEST ► M1 Finance: https://optimizedportfolio.com/go/m1 ► My review of M1 Finance: https://www.optimizedportfolio.com/m1-finance-review/ ► Get my dividend portfolio: https://www.optimizedportfolio.com/m1-finance-dividend-pie/ ► Lazy Portfolios: https://www.optimizedportfolio.com/lazy-portfolios/ ► Beginners’ reference guide (updated regularly): https://www.optimizedportfolio.com/beginners-start-here/ // SOCIAL ► Website: https://www.optimizedportfolio.com/ ► Patreon: https://www.patreon.com/optimizedportfolio ► Facebook: https://www.facebook.com/optimizedportfolio/ ► Instagram: https://www.instagram.com/optimizedportfolio/ ► Twitter: https://twitter.com/OptimizedPort ► Support my channel by shopping on Amazon (free for you): https://amzn.to/2TLCgCc I appreciate all the support! Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: https://www.optimizedportfolio.com/terms/ Disclosure: Some of the links above are referral links. At no additional cost to you, if you choose to make a purchase or sign up for a service after clicking through those links, I may receive a small commission. This allows me to continue producing high-quality content on this channel and pays for the occasional cup of coffee. I have first-hand experience with every product or service I recommend, and I recommend them because I genuinely believe they are useful.