New York - Millions of investors keep money in T-Bills because they believe there is no risk. This is not true.
Although the government of the United States can technically go bankrupt - the real risk in owning these investments is that the after-inflation returns that you earn on your investments can be extremely low. Thus, there are opportunity costs and a real risk that your returns during your term of ownership may not keep pace with inflation.
The real interest rate on a fixed income investment such as a T-Bill is based on the nominal or stated yield less the inflation rate. Thus, if your T-Bill is earning 5% and inflation is 3%, your real interest rate return is only 2%. Of course, all securities, whether stocks or bonds bear this risk. The benefit of owning stocks and bonds is that their returns are historically higher and the base inflation rate of 3% would still apply.
If you are holding your money for extremely long-periods of time, investing in T-Bills can be risky because you may lose purchasing power.
Inflation-indexed Treasury securities are an ideal way for investors who are concerned about inflation and are concerned about principal loss. This includes individuals who are nearing retirement age or those in retirement who to want to preserve the principal value of their investments but do not want interest income eroded by inflation.
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