A T-Bill Ladder strategy is where you invest in several T-bills with staggering maturity dates, so only a fraction of your total T-bill investments mature at any time. This way, you can auto-re-invest your principal and collect a stream of income(interest) with each maturity date.
Now What Does That Mean?
Well, anyone can spout out their definition of a T-Bill Ladder Strategy and move on, but what does this mean in real-world examples? Here is my own T-Bill Ladder Strategy I’ve been setting up to start.
Later, I’ll talk about why I want to start using this investment strategy and how it works in my big plan for financial independence through building passive income streams.
Note this is an example based on my understanding of how to build a T-Bill Ladder system and not financial advice. I plan to implement this, but that is for my own financial goals. Do your research.
FYI, what we call interest in T-bills is the difference of money received at maturity vs. the actual security cost. FAQ: What Is A Zero Coupon Bond?
T-Bill Ladder Strategy Example – The Setup:
I will take a portion of my money, say $15,000, and split it into three separate piles of money. 3 x $5,000.
With each $5,000, I will be investing into T-Bills With different maturity dates, and in this example, I will be using the 3-month (13 weeks) T-Bills.
I plan to use: Treasury Direct – T-Bills
T-Bill Ladder Strategy Example – The Investments:
How we grow the portions of money is invested into T-Bills. How the ladder is built, so as time goes by, your funds continue to grow.
T-Bill Ladder Investment Month #1:
Purchase/Buy $5,000(the first 1/3 of my initial investment funds) in 13 weeks(a “three-month” T-Bill). We will call this T-Bill “A.”
Turn on auto-re-invest. So, my T-Bill principle is re-invested into a new 13-week T-Bill when it matures.
Then wait.
T-Bill Ladder Investment Month #2:
Purchase/Buy another $5,000(the second of 1/3 of my initial investment funds) in 13 weeks(a “three-month” T-Bill). We will call this T-Bill “B.”
Also, turn on auto-re-invest. So, this T-Bill principle is re-invested into a new 13-week T-Bill when it matures.
T-Bill Ladder Investment Month #3:
Purchase/Buy another $5,000(the third and final, for this example, 1/3 of my initial investment funds) in 13 weeks(a “three-month” T-Bill). We will call this T-Bill “C.”
Again, turn on auto-re-invest. So, this T-Bill principle is re-invested into a new 13-week T-Bill when it matures.
Where The T-Bill Ladder Strategy Magic Happens:
T-Bill Ladder ReInvestment Month #4:
The first T-Bill (T-Bill “A”) Matures has been “three months” since the 13-week T-Bill was purchased.
Now, the principle from this matured T-Bill (T-Bill “A”) will be auto-reinvested into another 13-week T-Bill. Let’s call it T-Bill “D” for clarity.
Also, the Interest will be returned to you.
T-Bill Ladder ReInvestment Month #5:
The second T-Bill (T-Bill “B”) Matures has been “three months” since that 13-week T-Bill was purchased.
Now, the principle from this matured T-Bill (T-Bill “B”) will be auto-reinvested into another 13-week T-Bill. Let’s call it T-Bill “E” again for clarity.
Also, the Interest will be returned to you.
T-Bill ReInvestment Month #6:
The third T-Bill (T-Bill “C”) Matures has been “three months” since that 13-week T-Bill was purchased.
Now, the principle from this matured T-Bill (T-Bill “C”) will be auto-reinvested into another 13-week T-Bill. Let’s call it T-Bill “F” again for clarity.
Also, the Interest will be returned to you.
Etc, Etc, Etc – A T-Bill Money Train… Whoo Whoo!
Now, with this example, you can see how you can create monthly income with three simple investments in T-Bills and set to auto-purchase new ones at each maturity date.
This investment method is a simple system to protect your principle, with the guarantee of being backed by the US Treasury and still making a decent interest rate versus what a bank gives.
From my research, T-Bills offer higher rates(yields) than many money market mutual funds, and one added benefits people rarely mention about T-Bills….
Unlike regular investment returns like Dividends, Mutual fund yields, bank savings account interests, or even HYSA returns, T-Bill interest is exempt from State and Local Income Taxes. Please verify this with your Tax Professional first.
I live in Pennsylvania, and my income tax is just over 3%, which might not seem like a lot from my former state, New Jersey, but saving 3% income tax has caused some of my friends to relocate to other states without income taxes.
So 3% is a lot to some. For me, it means I retain more money to invest more, which means Mo’Money, Mo’Money, and a faster track to financial independence.
My T-Bill Ladder Strategy example was simple enough to understand; if not, please leave a comment. I can always use your feedback.
I hope my T-Bill Ladder Strategy example wasn’t too simple that it was insulting; I felt insulted when I figured out how simple this was while I was planning it. When I get around to moving money(my 6 month Emergency Fund) out of other cash investments( How To Build T-Bill Ladder Emergency Fund ), I’ll post a link here: TBA
I want to take this concept and apply it to investments I want to keep secure and have some access to, at least every month, as an Emergency fund should.
What Is Your T-Bill Ladder Strategy?
 Myself with an interesting Bull Sculpture. Notice: No Lambo’s. :/ | Hi I’m Tom, A Blogger And A PIG Farmer. PIG Farmer as in I grow Passive Income Generators(PIG’s). I’ve been playing with stocks, mutual funds, and options for decades, as well as always working on my side hustle stacks. Unlike what you read online, I’ve yet to find a way to get rich quickly. Get Rich Quick isn’t happening for me. My journey has been long and continues. I hope to have so many PIGs I can stop working at my current job and volunteer as a medical worker overseas. Still waiting, but getting there. I still am a family man, and while on this Journey of Growing PIGs. I wanted to share my adventures(ups and downs), hoping you will contribute with your feedback and comments. Fun Fact: In my spare time, I am a Band-Dad! |