Time To T-Bill And Chill? Stock Market Too High?

Now, there is a lot to be said in the title of this post, and I will break it down as far as what I’m doing. Simply put, T-Bill And Chill Time.

It’s time for me to T-Bill and chill since the stock market is too high. The ‘too high’ statement for the stock market is subjective. As well as my opinion of using T-Bills to wait out for market corrections.

Dividend Plans: Why T-Bill And Chill Is OK, For Now.

Now, I plan to live off the dividends of a well-built portfolio of stocks. Dividend investing is my favorite passive income generator.

As you must have read from earlier posts, I’m a fan of SCHD. The almost 4% dividend is on par with the “4% rule” every YouTube Financial Guru quotes, based on a long-term study most might not have read.

However, there is some truth to the famed “4% rule” for me. A stock portfolio with a 4% yield is enough to live on with a significant enough investment. It doesn’t overextend most stocks’ ability to continue their dividend without doing dumb stuff like issuing new stocks or borrowing money to maintain their dividend rate.

Add in an excellent diversified portfolio and a dividend growth rate that exceeds the average inflation rate, and I’m happy. Sure, like many of you are.

However, what does this have to do with T-Bills? Sorry, I’m getting there.

The stock market is overpriced. Not just me but many of my mentors. Some mention trivial events like the “Santa Claus Rally,” others fundamentalist quote the decline in commerce over the road(Yellow has filed for bankruptcy), others talk about the impact of the inverted yield curve and its effects on commerce and the “velocity of money,” or others quote stock market indicators like the RSI being so high.

Regardless, I feel the same. This is my money, and I have to manage my risk management and address my needs for my money to work for me without putting my money at significant risk.

Again, the stock market needs to be more affordable. Now is the right time to buy bonds.

But I want my money always to be making money. So it must be invested somewhere, and T-Bills work for me.

Time To T-Bill And Chill?

Waiting to time to pass, while chilling out.

I have two types of investment accounts: retirement and Non-Retirement; based on my past observations, all have unique gifts that might benefit from T-Bills.

And my retirement accounts are broken into pre-tax(Regular IRAs and 401ks) and post-tax (Roth 401ks and Roth IRA).

All benefit from buying lower-priced stocks and ETFs, but some benefit from T-Bills versus other investment types.

For my tax-deferred (IRA and Regular 401k), there is little benefit to using a tax-benefited investment like T-Bills (FAQ: What Is A Zero Coupon Bond?) versus any other that offers the same rate. Any growth inside these funds will be taxable upon withdrawal.

For tax-exempt investments(Roth IRA and Roth 401k), T-Bills’ tax benefits increase except for state and local taxes and federal income taxes. However, that’s with any pre-tax plan. So again, T-Bills only offer a few tax benefits compared to any other investment here if the rates are the same.

Now for my significant Non-Retirement investments. I have a regular brokerage account with Charles Schwab. I love their service.

Being a non-retirement account, I am subject to income taxes. However, since I heavily invest in SCHD, much of my federal income falls under qualified dividends, so I pay the capital gains rate of income taxes. Much lower than regular active income tax rates.

Now, after saying that, you might see the hick-cup with using T-Bills; they don’t fall under qualified dividends. My accountant informs me that I am exempt from State and Local Income taxes with T-Bill returns. Those returns are subject to the total tax rate of regular income.

So Where Is The T-Bill Benefit Here?

So, when talking about both types of retirement accounts, there was little benefit to using T-Bills compared to other investments in those accounts for the same rates.

However, there is a small benefit to using T-Bills in my non-retirement account. Correct me if I am wrong; I’m always a learner.

Reason: Stock Market Too High.

I do not want to buy stocks or ETFs now.

So, I want to park my money somewhere it can grow without being at risk of loss, and later, I can buy into the stock market after the pullback.

With Schwab, I have many options, and for simplicity, here are just a couple I have experience with:

Regular Schwab Bank Rates, which I covered, are sad and will not do again(Best Charles Schwab Sweep Account Rate Of Return?)
Money Market Funds, which offer reasonable rates.
T-Bills provide decent rates as well as tax benefits.

So, from my options, I have the pitiful bank rate of Schwab’s cash sweep account, the sound returns of some of Schwab’s Money Market Mutual Funds, or similar rates of using T-Bills with local and state income tax avoidance.

Well, it sounds like the T-Bills are winning!

Hold It What Are The Disadvantages of Using T-Bills?

I hope you didn’t think there wasn’t another shoe to drop.

T-Bills are locked up until maturity since I wanted to avoid trying to sell them at a possible loss on the secondary market.

So, the loss of opportunity (money tied up) is a problem using T-Bills.

Also, there are disadvantages to using T-Bills on the Schwab platform:

The minimum purchase I saw was $1,000; T-bills can only be bought in blocks of $1,000.
There is a rumor with auto reinvesting on the Schwab platform that causes one-week delays in T-bill investing. During that week, you only get the Schwab’s Bank Rate(same as the Cash Sweep Account).

So….. what am I doing to avoid some of these issues?

Which Bonds To Buy While Waiting?

I want my money to work for me all the time and be available as much as possible to ensure I get all the investment opportunities.

I am not much of a person who can precisely time a market, but I can see how the tide ebbs and flows. And the tide is high right now.

I plan to take the money I have as much moving around that I am no further than a week from any t-bill maturity, freeing up cash for any stock purchases I want as the market corrects.

I found through experimenting I like the 4-week t-bill ladder(4-Week T-Bill Ladder For Weekly Income Strategy).

A portion, in this case, 1/4th of all my available funds, becomes available with each week of the t-bill maturing. I have to turn off auto-reinvest, and the money arrives in my bank account each week.

How am I doing this after bashing Schwab’s T-Bill services?

I am using Treasury Direct(https://www.TreasuryDirect.gov). Because money is always working, as one t-bill matures, it’s auto-reinvested into another t-bill starting the same week. So no delay in reinvestment, and always the T-Bill Rate.

Also, with Treasury Direct, my minimum purchase is $100; after that, I can purchase additional T-Bills in blocks of $100.

So, the upfront purchase is a lower minimum, and money always works, so what is the problem with Treasury Direct?

After a slight learning curve using Treasury Direct, an older-style website, you must be willing to move money around. I’ll explain what I’m doing with the latest SCHD Dividend distribution in a later post(UPDATE: Schwab SCHD To 4 Week T-Bill Ladder, And Chill Progress).

What Are The Current T-bill Rates?

Now, T-Bill rates can change with each auction, so it is best to look at the most recent auctions to see what rates people are getting with T-Bills: https://home.treasury.gov/resource-center/data-chart-center/interest-rates/TextView?type=daily_treasury_bill_rates

How Do You Buy US Treasuries?

I use Treasury Direct, a stand-alone service connected with the US Treasury Department.

What Money Is Best For T-Bills?

I wanted to cover this question since if you read in the past, I’m moving much of my 6-month emergency Fund(Baby Step #3 of Financial Peace University‘s Baby Steps) into a T-Bill ladder.

I have my tiny weekly dividend portfolio on M1 Finance, which is left on auto-drive, and the dividends auto into that portfolio.

I have my retirement accounts in Vanguard and Fidelity, which offer sweep accounts with high-interest rates. T-Bills provide a slight advantage there, so I am not moving that money.

The money I am talking about is dividends distributed by my SCHD holdings from my most extensive non-retirement brokerage account. By moving this money, I get the advantages I already mentioned. Especially the tax advantages.

So, I’m using regularly distributed dividends to invest in T-Bill till the stock market cools off. T-Bill and chill time.

Your Feedback.

Not much to think about with a T-bill and chill approach.

I will cover the steps to create my T-Bill ladder while chilling out.

What are you doing with your investments? Are dividends being automatically reinvested into your stocks? Are you pausing investments, too?

I love to hear your comments.

Tom, Growing His Passive Income Generators.