I, for one, have NO interest in zero percent return on my money. Yet this weeks’ traunch of 4-week US Treasury bills paying ZERO percent sold out! Yes, you read correctly; people stormed the Treasury to have the US Government hold their money, period, paying out zero (or less, read on) interest.
As a matter of fact, a whole slew of Nervous Nellies and Nells also bought some 3-month Treasury bills and the demand was so prevalent at one point (the prices were pushed up so high) that the yield actually dropped to LESS THAN ZERO percent interest; i.e., NEGATIVE interest! (Bond prices and bond yields are on an inverse relationship in that when prices rise, yield drops.) In other words, some savers lost actual PRINCIPAL in T-bills. Here’s how that works: Nervous Nellies/Nells paid $100. for Treasury Bills on which they would only be paid 99.99 or 99.98 at maturity. WOW!
Now I’ve repeated myself, cause I’m still trying to understand it! Let me see, Treasury Bills are basically bearer obligations of the United States which are backed by the full faith of the US government. They are generally sold at a discount and they promise to pay a specified percentage of interest on a specific scheduled date. (FYI, the spread between the purchase price and the maturity value is deemed interest, which is federally taxable, but exempt from State and Local income taxes.) So, the principal face amount backing/guarantee is generally attractive, and yes, gives some savers a warm and fuzzy feeling. But when one purchase at the maturity value of the bond, there is no spread, thus no interest.
Real inflation is definitely more than zero currently, so these Treasury bills, while guaranteed in principal to pay their maturity value, don’t fall into my definition of “safe” because their purchasing power is diminished. If you have a pulse, you are buying stuff. And the “stuff” you are buying, from heating oil, to gasoline to groceries to hospital beds to prescriptions, costs more because of inflation.
I am aware that in addition to individual Nervous Nellies and Nells, many institutional money managers bought these zero interest Treasury bills to “window dress” their portfolios. You see, the holdings of most money managers are posted at the end of each quarter, and if a portfolio manager suffered negative volatility, they may counterbalance some of their risky holdings by buying some Treasuries, or they may even sell those riskiest holdings and use the proceeds to buy Treasuries. This would give a different, and in these times a more “comforting” feeling to their existing or prospective investors, wouldn’t it? We women investors are smarter than just to look at holdings in the past quarter however.
While I am not rendering professional investment advice here, I am imploring mature women investors to use our hard wired common sense and not over react with our portfolios towards what some in the marketing world would call “safe”. We STILL need a return ON our investment portfolios, not just a return OF our investment, especially for the long term. Remember, we still have longer life expectancies than our male counterparts.
So women, if you have your short-term scalpel out, back away from your statement or computer screen or telephone, put the knife down, and allow your portfolio to perform long-term in an array of investment types–some stock mutual funds, some bond mutual funds and some cash/CDs.
Even with many stocks and stock mutual funds having been pummeled in value, many are still paying attractive dividends, albeit some of them reduced. Bonds and bond mutual funds are still paying interest, and some high grade short term municipal bonds/mutual funds are attractive. Do some homework and/or consult with your fee-only financial advisor as to your risk tolerance and the relationship to that of your portfolio holdings relative to your goals, but I implore you, do NOT accept zero percent interest, now or ever!