By Ryan Yuhnke
It’s no secret that the market volatility of the last several months has been challenging for many, especially those who are risk-averse or nearing retirement. Many investors have exited the stock market entirely. But is going completely to cash really the best move? When you add the historic levels of inflation to the mix, staying in cash assets (even those in high-yield savings accounts) seems just as risky as investing in the market. So, what’s a risk-averse investor to do?
Consider Short-Term U.S. Government Debt
In short, if you want to invest but want low risk, you may consider short-term U.S. government debt. At Court Investment Services, we currently recommend 3 or 6-month U.S. Treasury Bills (or T-Bills). As of November 30th, the 3-month U.S. T-Bill had an annualized yield of 4.27% and the 6-month U.S. T-Bill had an annualized yield of 4.5%.
Because these T-Bills are backed by the full faith and credit of the U.S. government, they are considered risk-free assets.
Less Interest Rate Risk
The market volatility of the last year hasn’t spared anyone, including those invested in bonds. So, some may be asking, “Why would I put my money in bonds if I want zero risk? What happens if interest rates continue to go up?”
If interest rates continue to rise, as the Fed has signaled, then this is exactly the time to buy short-term bonds and avoid long-term debt instruments. The shorter the bond’s maturity, the less interest rate risk you are exposed to, meaning 3-month T-Bills are one of the safest investment options available.
Buying a 3-month T-Bill only locks you into that interest rate for 3 months. If rates go up, then you simply buy another T-Bill early next year and take advantage of that higher rate in the future!
Less Credit Risk
When compared to other low-risk investment options, T-Bills are still attractive. For instance, you could put your money in a certificate of deposit, which is a relatively low-risk option. But these savings vehicles may come with liquidity risk. In some cases, withdrawing funds from the CD prior to maturity may cause you to lose the incentive interest rate offered.
This makes sense if you think about it from the bank’s perspective. It allows the bank to lock in deposits from the customer and lend out those same funds at higher interest rates for business loans, auto loans, home purchases, refinances, etc. So the bank is incentivized to attract the most deposits possible at the lowest rate. This is not the case with U.S. government debt.
The T-Bill also alleviates the credit risk associated with CDs. If the banks holding your CDs run into financial trouble, similar to what happened in 2008 with Washington Mutual and Indymac Bank, then your assets could be at considerable risk, especially any funds above the FDIC limit of $250,000.
With U.S. Treasury debt, your investment is backed by the full faith and credit of the U.S. government, so credit risk is reduced.
CIS Can Help
At Court Investment Services, we offer a cash management strategy that actively takes advantage of the current T-Bill environment. We will roll cash into U.S. T-Bills with one-day liquidity and pay upwards of 4.40% interest (as of December 2022). This can be a great way for risk-averse investors to maintain liquidity without sacrificing return.
To learn more about how CIS can help you take advantage of this unique interest rate environment, schedule an appointment by contacting us at (800) 880-2760 or Kitty at kchu@CourtInvestmentServices.com.
About Ryan
Ryan Yuhnke is founder and Principal at Court Investment Services, an independent, fee-based investment firm that serves attorneys and fiduciaries as they manage estate-held assets. With two decades of experience, Ryan’s proactive, relationship-based process saves his clients time and money while putting them first in everything. He provides services and support to help attorneys and professional partners oversee and manage special-needs trusts, estates, conservatorships, guardianships, and other court accounts, including IRAs, 401(k)s, and all manner of retirement accounts that also fall under his clients’ management. Ryan is known for his commitment to excellence and transparency and his deep knowledge of probate laws, court compliance, and strategies to keep assets safe while abiding by all court and probate code directives. Ryan’s goal is to make his clients’ lives easier, providing investment support and education along the way.
Ryan has a bachelor’s degree in economics from the University of California, Irvine, and built his career working in banks, national investment firms, and registered investment advisory firms (RIAs.) Prior to starting CIS, he earned the title of First Vice President, and Portfolio Management Director while employed at Morgan Stanley in Newport Beach, CA. When he’s not working, Ryan can be found traveling to experience new cultures and environments, focusing on personal development through mental, social, spiritual, emotional, and physical growth, and most importantly enjoying quality time and creating new memories with family and friends. To learn more about Ryan, connect with him on LinkedIn.
