Warren Buffett is a legendary investor. So, when Berkshire Hathaway — where he is chairman and CEO — makes an investment move, many take notice.
As of mid-2024, Berkshire Hathaway held more than $230 billion in short-term Treasury bills, otherwise known as T-bills.
With top investors leaning on T-bills, it's worth taking a closer look to determine if they make sense for your own portfolio as you build wealth.
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What are T-bills?
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Treasury bills, or T-bills, are short-term investments that the U.S. Treasury backs. The bills are sold in terms that range from four weeks to 52 weeks.
The bills are sold either at face value or at a discount. But generally, most T-bills are sold at a discount. The bill's interest rate is represented by the difference between the purchase price and the par amount, which represents the face value.
Investors who buy T-bills can wait to receive the face value at maturity. The other option is to sell the T-bill before it matures for less than face value.
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How much in T-bills does Buffett own?
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As of mid-2024, Berkshire Hathaway held more than $230 billion in short-term Treasury bills.
That stake is so large that the company owns more T-bills than the Federal Reserve, which currently holds $195 billion in T-bills.
Why do investors like Buffett love T-bills?
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Savvy investors have many reasons to love T-bills. Below is a closer look at why T-bills make an attractive opportunity for many investors.
1. They are incredibly safe
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T-bills are backed by the full faith and credit of the U.S. government. For that reason, most investors consider T-bills to be an incredibly safe investment opportunity.
After all, the country would virtually have to fall apart for you to miss out on T-bill returns. For investors who value security and minimal risk, T-bills are difficult to beat.
2. Yields have increased
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T-bill yields typically have relatively low interest rates. After all, the low amount of risk leads to a relatively low return. But in recent years, T-bill yields have increased from where before.
Recently, the one-year yield on T-bills yields has been hovering around 4%. On the other hand, yields were near zero in 2020.
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3. They offer tax advantages
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T-bills offer investors tax advantages. Specifically, you won't need to pay state or local income taxes on your T-bill earnings.
However, you will still have to pay federal taxes on the interest you earn from T-bills.
4. They come in a range of maturities
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T-bills are short-term investment opportunities. You will find a range of maturities available ranging from four weeks to 52 weeks.
The available maturities include four weeks, eight weeks, 13 weeks, 17 weeks, 26 weeks, and 52 weeks.
5. They can be sold easily
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When you own a T-bill, you could wait for it to mature to receive interest earnings. However, there may be circumstances where you prefer to sell T-bills before they mature.
The good news is that it's easy to sell T-bills to other investors on the secondary market.
The sale process usually involves transferring the bill to a dealer or broker, who will then sell the bill for you. Since liquidity matters to many investors, the opportunity to access funds quickly is a nice option.
Are T-bills right for you?
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T-bills are a worthwhile investment choice for some. But, of course, these investments won't suit everyone's needs.
For investors who value safety and don't mind relatively low yields, T-bills offer a good solution. You can put your funds to work without having to worry about losing your original investment.
It's an especially good option for a portion of your investment portfolio that you would like to keep as liquid as possible. Investing some of your portfolio in T-bills could offer a buffer against the volatility of the stock market.
However, investors looking to build their wealth over the long term might leave too much on the table by leaning too heavily on T-bills. Those looking for higher yields who are OK with taking some risk might prefer to invest money in the stock market.
It's worth noting that Buffett typically leans on a large stash of T-bills when he spots an opportunity in the stock market. Buffett's war chest of T-bills allows him to make a big investment play at a moment's notice, which means T-bills are treated like a safe way to store and grow funds temporarily.
If you are unsure about how to manage your money and whether T-bills make sense for you, consult with a financial advisor who can offer advice.
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Bottom line
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Investors seeking security and hoping to get ahead financially might like what T-bills have to offer. However, these investments come with relatively low returns and generally won't replace the need to invest in the stock market to build long-term wealth.
Instead of going all-in on T-bills, talk to your financial advisor to see whether it might be a good idea to include these investments as a part of your overall portfolio.
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