Why own 1 to 3 month Treasury Bills (BIL) ETF?

[RetiredHappy]

Some of you may remember that I reported that we moved our managed portfolio from ML to self-managed at Fidelity in September. We are still sieving out what to sell off as each account has a bundle of about 30 ETFs. One that I continue to scratch my head over is BIL, which is a 1-3 months Treasury Bills etf. We do want to hold some fixed income. Why would anyone want to hold BIL? I am thinking of selling off all BIL and buying TIP instead. It does not look like you will lose money with TIP - returns are much better than BIL. Any other thoughts regarding fixed income ETF are appreciated.

Thank you for your inputs.

[njhowie]

Well, BIL certainly provides what appears to be ... nothing.

As far as TIP, pull up the 5 year chart and check where it went down - April 2017-October 2018, with a quick 3% sell off from August 2018-October 2018. I'd go look a little more closely at those periods to try and get an understanding of what was taking place during those periods. What was the Fed doing? What was the economy doing?

[SecondAttempt]

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Originally Posted by njhowie Well, BIL certainly provides what appears to be ... nothing. As far as TIP, pull up the 5 year chart and check where it went down - April 2017-October 2018, with a quick 3% sell off from August 2018-October 2018. I'd go look a little more closely at those periods to try and get an understanding of what was taking place during those periods. What was the Fed doing? What was the economy doing?

BIL would be to slightly increase yield over a money market account. Can't say I see a point to hold i right now but that may explain why you have it.

[SecondCor521]

Quote:

Originally Posted by SecondAttempt BIL would be to slightly increase yield over a money market account. Can't say I see a point to hold i right now but that may explain why you have it.

I thought money market accounts usually invested in...short term Treasuries. So to me, BIL would be a money market account. The only reason I could see to own it would be for money I was planning on spending in the next few months. I'd consider it a cash equivalent.

My cynical opinion as to why OP held it is because ML investment managers were trying to make things look complicated while also racking up investment fees.

[RetiredHappy]

Quote:

Originally Posted by SecondCor521 I thought money market accounts usually invested in...short term Treasuries. So to me, BIL would be a money market account. The only reason I could see to own it would be for money I was planning on spending in the next few months. I'd consider it a cash equivalent. My cynical opinion as to why OP held it is because ML investment managers were trying to make things look complicated while also racking up investment fees.

Not cynical at all. However, they got paid on the entire portfolio whether it was cash or not.

[RetiredHappy]

Quote:

Originally Posted by njhowie Well, BIL certainly provides what appears to be ... nothing. As far as TIP, pull up the 5 year chart and check where it went down - April 2017-October 2018, with a quick 3% sell off from August 2018-October 2018. I'd go look a little more closely at those periods to try and get an understanding of what was taking place during those periods. What was the Fed doing? What was the economy doing?

Ah... I have not looked at it closely. Thank you. Since we are buy and hold people I think TIP is a good fixed income hedge against equities.

[Time2]

Quote:

Originally Posted by RetiredHappy Some of you may remember that I reported that we moved our managed portfolio from ML...

30 ETFs, did they get a commission as you bought each one?

Quote:

We are still sieving out what to sell off as each account has a bundle of about 30 ETFs.

I just think this is a good lesson for those thinking about having someone else manage your portfolio. No one needs 30 ETFs, I hope most is in tax deferred accounts so you don't owe tax, when you sell those off to get a reasonable portfolio.
Best of luck going forward.

[OldShooter]

For the kind of small money that most of us have, the big guys have a set of portfolios and they just pigeon-hole our money into the one that seems to fit best. One of the criteria for the portfolios is that they must make investing look complicated. Another is that they must be easy for the account salesperson to manage. BIL satisfies those criteria, where buying t-bills directly into the account would be a hassle.

Re TIPS, we are believers for significant portfolio % as long-term holdings. I don't see much point for short term because inflation is not wildly volatile, so you are paying extra for inflation protection that probably won't be needed. I have no data to back that theory up, however. I also don't see much point in small percentages, leaving a large fraction of the portfolio unhedged. Again, YMMV.

[BlueberryPie]

I was with Facet Wealth for a year, really good guys, fiduciary, but they still had way too complicated of a portfolio construction, no less than 3 value funds for example. I'm more of of a 3 funds will do it kind of investor. I would even consider a single target date fund, although I'd lie about my age/target, they get too heavy in bonds for my taste after retirement (I know different retirement funds do have different glide paths and some are more conservative than others)

[RetiredHappy]

Quote:

Originally Posted by Time2 30 ETFs, did they get a commission as you bought each one? I just think this is a good lesson for those thinking about having someone else manage your portfolio. No one needs 30 ETFs, I hope most is in tax deferred accounts so you don't owe tax, when you sell those off to get a reasonable portfolio. Best of luck going forward.

The firm does not get commission to buy them, just basis points from AUM. What pushed me over was that they were actively trading, regardless of taxable vs. deferred accounts. Prior years we were getting as much as $60K in capital gains incurred but for this year, we hit $70K capital gains by May. I was pretty irate and that's when I told my husband that we need to pull out from the relationship. It was around July that I started reading early-retirement.org and realized that we should do it ourselves. By the time we extracted from the relationship in Sept, our realized capital gains already hit $100K. I am pissed... Anyway, it all ends well and here we are. Next year I have another investment that was sold to me by ML (no commission) that is going to see another couple of hundred thousand dollars in capital gains when it matures. That is another story.

We are not selling the positions with capital gains and they are all equities etf. Fixed income etfs have next to nothing in capital gains so they are easy to get rid of and buy something else.

[aja8888]

Quote:

Originally Posted by RetiredHappy The firm does not get commission to buy them, just basis points from AUM. What pushed me over was that they were actively trading, regardless of taxable vs. deferred accounts. Prior years we were getting as much as $60K in capital gains incurred but for this year, we hit $70K capital gains by May. I was pretty irate and that's when I told my husband that we need to pull out from the relationship. It was around July that I started reading early-retirement.org and realized that we should do it ourselves. By the time we extracted from the relationship in Sept, our realized capital gains already hit $100K. I am pissed... Anyway, it all ends well and here we are. Next year I have another investment that was sold to me by ML (no commission) that is going to see another couple of hundred thousand dollars in capital gains when it matures. That is another story. We are not selling the positions with capital gains and they are all equities etf. Fixed income etfs have next to nothing in capital gains so they are easy to get rid of and buy something else.

Don't worry about capital gains if you are not selling. And in some instances, when the market tanks, your capital gains will magically vanish!