5 ms·

I was actually basing the amount off the 1 yr. Does the gov't pay interest yearly on t-bills or only once they mature?(sorry if this sounds stupid, but I've nev

I was actually basing the amount off the 1 yr. Does the gov't pay interest yearly on t-bills or only once they mature?(sorry if this sounds stupid, but I've never had enough $ to think about buying any)

ChuckMcM 16y ago
Well the US Treasury sells T-bills every quarter, folks who have T-bills and want to convert them into cash sell them pretty much at any time. A treasury bill has a 'face value', like $10,000 which is what the bill will be worth, and a maturity date which is when it will be worth that. If you buy a T-bill you buy it at an 'auction' [1] in which you (typically) pay less than the face value and you calculate what it would be worth when it matures, which gives you the return. If you hold it until it matures your return is 'guaranteed'. Bonds can be re-sold, and they are, so you can hold a bond for a while and as interest rates change the 'value' of your bond changes because it has a fixed maturity value and maturity date. So if you are building a treasury bond 'ladder' you take your money, divide it up into 'n' equal parts, and buy bonds that are about to mature 'momentarily' (like this quarter), in 2 quarters, in 3 quarters, in a year, Etc until with the last little bit you buy bonds that are brand new and mature in 10, 20, or 30 years (depending on your style). Now every quarter you have mature bonds to turn in for cash, which you then use to buy the same face value of bonds that mature in 10, 20, or 30 years. You will have money left over and that is your 'income' every quarter. The face value of all your bonds is 'fixed' and your income stream comes from turning over mature bonds into newly issued ones. This is exactly what a 'bond fund' does, it charges you to do all the paperwork, it might use a mix of bonds to get a better rate of return. But if its just you making a fund for yourself, pretty much any competent financial agent can set it up for you. And while it is very safe (because it is very low risk) it won't pay you as much as you might want. On the plus side with "Treasury Inflation Protected Securities" (TIPS) you won't lose money due to inflation either, with the caveat that the same guys who are paying you interest are the arbiter of what is and what isn't 'inflation' and as many have pointed out this is sort of a conflict of interest. If you have $5M and give it to a decent manager (I know I know how do you find 'decent'?) and tell them "I want an upper middle class tax free income off this with no risk to the principal." they should be able to oblige you. (disclaimer, I'm not a financial analyst! seriously if you had that kind of capital it really really helps to have someone who does this all day to help you manage it, happy to recommend mine if you contact me off list.) [1] http://www.treasurydirect.gov/instit/auctfund/work/work.htm http://www.treasurydirect.gov/instit/auctfund/work/work.htm

ChuckMcM 16y ago

Well the US Treasury sells T-bills every quarter, folks who have T-bills and want to convert them into cash sell them pretty much at any time. A treasury bill has a 'face value', like $10,000 which is what the bill will be worth, and a maturity date which is when it will be worth that. If you buy a T-bill you buy it at an 'auction' [1] in which you (typically) pay less than the face value and you calculate what it would be worth when it matures, which gives you the return. If you hold it until it matures your return is 'guaranteed'. Bonds can be re-sold, and they are, so you can hold a bond for a while and as interest rates change the 'value' of your bond changes because it has a fixed maturity value and maturity date. So if you are building a treasury bond 'ladder' you take your money, divide it up into 'n' equal parts, and buy bonds that are about to mature 'momentarily' (like this quarter), in 2 quarters, in 3 quarters, in a year, Etc until with the last little bit you buy bonds that are brand new and mature in 10, 20, or 30 years (depending on your style). Now every quarter you have mature bonds to turn in for cash, which you then use to buy the same face value of bonds that mature in 10, 20, or 30 years. You will have money left over and that is your 'income' every quarter. The face value of all your bonds is 'fixed' and your income stream comes from turning over mature bonds into newly issued ones. This is exactly what a 'bond fund' does, it charges you to do all the paperwork, it might use a mix of bonds to get a better rate of return. But if its just you making a fund for yourself, pretty much any competent financial agent can set it up for you. And while it is very safe (because it is very low risk) it won't pay you as much as you might want. On the plus side with "Treasury Inflation Protected Securities" (TIPS) you won't lose money due to inflation either, with the caveat that the same guys who are paying you interest are the arbiter of what is and what isn't 'inflation' and as many have pointed out this is sort of a conflict of interest. If you have $5M and give it to a decent manager (I know I know how do you find 'decent'?) and tell them "I want an upper middle class tax free income off this with no risk to the principal." they should be able to oblige you. (disclaimer, I'm not a financial analyst! seriously if you had that kind of capital it really really helps to have someone who does this all day to help you manage it, happy to recommend mine if you contact me off list.) [1] http://www.treasurydirect.gov/instit/auctfund/work/work.htm http://www.treasurydirect.gov/instit/auctfund/work/work.htm