There are two ways to invest: to earn a fixed or Variable income.
Fixed income means investing your principal to earn a predetermined return, usually called a coupon.
With Fixed Income, you know exactly how much you will earn in yield terms when you invest.
Under the broad header of fixed income, we can also break it down into long and short-term. Most short-term fixed income investments have a maturity not exceeding 12 months.
Treasury Bills, a type of fixed-income investment, are usually issued by the government for 90 days. Most T-bills will not pay you any coupon, but will be issued at a discount.
When investing in fixed income, investors’ main objectives are to earn a guaranteed liquid payout and protect their principal from loss. The “safer” the investment security, as measured by the quality of the issuer, the lower the potential return. T-bills, issued by the nation’s highest-rated credit issuer, will command a lower interest rate than a privately issued security.
The US Yield curve is currently negative, meaning short-term instruments earn a higher yield (APR) than longer-dated securities.
Additionally, we want a cost-effective way to invest in this asset class. I always prefer ETFs because of their low costs, flexibility, and diversification. The expense ratio quoted shows how much the investor pays in commission and fees to purchase that investment. The lower he expense ratio, the better for the investors
So, here are a few names for you to research. Please consult your adviser before investing. These are US-issued securities, which are different from Nigerian-issued US-denominated bonds or money market securities.
1. iShares 0-3 Month Treasury Bond ETF (SGOV). yield of 4.69%, expense ratio of 0.09%
2. SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). Yield of 4.68, expensive ratio of 0.14%.
3. US Treasury 3-Month Bill ETF (TBIL). Yield of 4.64%, expense ratio of 0.15%
4. Vanguard Ultra-Short Treasury ETF (VGUS). Yield of 4.2%, expense ratio of 0.07%
If your adviser gives you the green light to invest, you can use the ticker, e.g., VGUS, and search on your Nigerian investing apps from @cowrywise, @Chakastock, @investbamboo, or even your traditional stockbroking apps, if they offer that service.
Finally, remember, offered rates and implied yield change with Fed rates, so if US Fed rates fall, the yield will also reflect this. The consensus opinion is that interest rates in America will fall; the question is when the Federal Reserve will reduce its benchmark rates
Stay invested.
Stay invested.