Treasury bills (T-Bills) are short-term sovereign debt securities maturing in one year or less. They are sold at a discount and redeemed at par. These bills are by far, the most liquid money market security available. One major reason for this is because they are by the guarantee of the Federal Government of the offering nation.
Although they are one of the safest investments available, the returns are quite low compared to other parallel investments. In general, T-Bills may be appropriate for investors who are nearing or in retirement. This is because retirement has a long-term effect. However, two main things need to be considered when deciding if it is appropriate for a retirement portfolio: opportunity cost and risk. If the intended investor is close to retirement, there may need to consider other investments that are available but with higher returns. Of course, the risk factor needs to be considered.
In the case of a 6-year old that wants to weigh the difference between investing in stocks and T-Bills, it might be a smart one to invest in the latter. This is because workers at this stage in life have less time to recover from losses incurred by an aggressive portfolio in a bad market. The sad truth is the difference in returns between both offers is so insignificant due to the small-time frame needed to compound. However, if the individual is a risk-taker, why not take a shot at it?
Stock over Bonds or the Other Way Around
Stock is simply buying into a company. It is a form of ownership in a company to show that you have a vested interest in it. There are no promises here and profitability depends on the rising of the stocks. The buy-in is in the form of shares (which are parts of a whole) while the returns are known as dividends. A bond is a form of debt in which the lender gives the borrower. The investor (or the lender) will finance the institution for some time and will receive a premium for the act. The premium is known as a coupon.
While stock guarantee higher returns and higher risks, bonds come with lower returns and lesser risks. This is because the investor in bonds is not a part of the organization in the first place. The disadvantage of stocks over bonds is that while bonds generally offer fairly reliable returns through coupon payments, stocks are not guaranteed to return anything to the investor. Due to the above fact, an intending retiree of 2-3 years close to retirement may choose to reduce financial risk by investing in something they can guarantee their returns on rather than speculation and observing the market trends.