Jul 13, 2022 - Economy

T-bill and chill may be the best investment of 2022

Illustration of Ben Franklin peeking out from behind a vault door

Illustration: Natalie Peeples/Axios

With markets ugly, some think stashing cash in short-term Treasuries — known as T-bills — might be an investor's best bet for now.

Driving the news: Markets — both stocks and bonds — just finished an egregiously bad first half of 2022, as the Fed's rate-hiking campaign crushed these twin cornerstones of most retirement portfolios.

  • The S&P 500 had its worst start since 1970, falling 21%.
  • Bonds were bad too. The Barclays U.S. Aggregate Index — a broad measure of the U.S. bond markets — lost 11%, even after factoring in interest payments.
Note: Treasury bills data refers to the Barclays 9-12 month Treasury bill index, U.S. bond market refers to the Barclays U.S. Aggregate index. Data: FactSet; Chart: Axios Visuals

The intrigue: In theory, having a balanced portfolio shields you from truly miserable years in either stocks or bonds. That's because when stocks do poorly, bonds typically do well, and vice versa. This year, not so much. (Unless you happen to have an unusually large allocation to commodities and energy.)

  • The first half was a disaster for the 60-40 portfolio — 60% stocks, 40% bonds — that plain vanilla mix of investments most money managers running client money tend to opt for.
  • According to Goldman Sachs, such a portfolio lost 17% through the first six months of 2022 — the worst showing since 1932.

The big question: Is the worst over? Is now the time to buy back in? Nobody knows. Especially not me, so none of this is investment advice. (As an aside, if I did know I'd be drinking Champagne from a crystal chalice in the shape of a boot while bobbing on a catamaran off Grand Cayman.)

  • One-time bond market macher Bill Gross thinks now's not the time to buy. He doesn't like stocks (he almost never does.) And he thinks the Fed's not done hiking rates, so can't recommend buying bonds.
  • His answer? "Be patient," he wrote in a recent blog post. Buy 12-month Treasury bills — short-term U.S. government debt that essentially acts as cash in financial markets — which are now yielding roughly 2.9%, he says. Then wait.
  • If you socked your money into T-bills you would have been more or less flat, losing only 0.9% this year, according to the Bloomberg U.S. Treasury bill index that includes bills that mature in 9-to-12 months.

What to watch: Gross says to hang on to those T-bills until there are signs that the economy is conclusively slowing. Signs that inflation is peaking. Signs that the Fed might stop lifting rates.

  • All of those could be hints that the bear market might be nearly finished pummeling your portfolio, and a market renaissance could be in the offing.

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