Treasury bills are theoretically risk-free investments. Many people, investors and even those who are not investing, view treasury bills as an asset for investors who are risk-averse, primarily because of its low or no risk and corresponding low returns.
However, it is worth noting that in some economies like Ghana, treasury bills rates can get as high as 25% whereas some risky investments return way less. Theoretically incorrect, but this is the real world of investment. The 10-year average return on the Ghana Stock Exchange is few basis points lower than the average return on the 1year note within the same period. In 2015 the Ghana stock market (GSE-CI)returned -11.77% whereas the 1year note averaged about 22.75%. Whether treasury bills return higher or lower interest to investors, it certainly provides more to an investment portfolio than just the level of returns.
Rather than putting all your money in high-risk investments for an expected high returns, you can lower the risk on your total investments by investing a portion, not all, of your money in ‘risk-free’ investments such as treasury bills. What this means is that even if you lose all your money you have put in other risky investments, you have the treasury bills to fall back on. For instance, some financial institutions, beyond regulatory requirements, invest millions of deposits and shareholders’ funds in treasury bills to partly offset the large risks they take through other investments such as loans and trading.
Treasury bills can be your only investment if you wish so, though I wouldn’t advise that. In countries like Ghana, Nigeria and Kenya with relatively high interest rates, some people choose to invest in treasury bills alone. Take Ghana for instance, you are likely to double your principal investment in less than 4 years if you invest in treasury bills at current rates (around 22%)and rates remain around current levels for another 4 years –which is possible. This you can do by just handing your money to the government by buying treasury bills through your bank or brokerage firm. In countries where the yields on government securities are high, you can take advantage of it and make some decent returns while you sleep, rather than risking your money for returns just about the same as those of treasury bills rates.
Safety of Investment
Many people are concerned about the fear of losing their money when it comes to investing. I’ve met so many. The first thing they ask is “will I get my money back, and how soon?” While these are legitimate questions every investor should be asking first, it is also important to know that investments are risky and it’s up to the investor to choose the risks that he or she can comfortably manage. For those who are not ready to take risk with their money, there are many options for you –and one of them is treasury bills. Your money is safe with the government of the day. You’ll get your principal in full plus the expected returns. Governments rarely default in their own currency.
Treasury bills are not for the one afraid to take risks with their money alone. They are for every class of investor – the risk-loving and the risk-averse
Get more stuff like this
Subscribe to our mailing list and get interesting stuff and updates to your email inbox.
Thank you for subscribing.
Something went wrong.