Amidst the growing skepticism in our banking sector, we thought it would be helpful to introduce an alternative way to both protect and diversify one’s assets. The information below discusses a method the I/O Fund uses to hold its cash, which is safer than banks, and yields 4.5% or higher.
The I/O Fund is an actively managed portfolio. We are not financial advisors, rather we discuss openly and in great detail what we are doing with our money through weekly webinars and real-time trade alerts. This has led to 174% better returns compared to Ark and results that are double the Nasdaq in the same time period.
Banks failing presents a new problem for investors, which is where to hold cash. We shared our thoughts on Treasury Direct accounts with our premium members last month, where we explained that opening a TreasuryDirect account allows anyone to directly purchase savings bonds and Treasuries (Notes, Bonds, Bills, TIPS, and FRNs) directly from the U.S. government.
This offers an option that is outside of the banking system, offers a decent yield, and is very liquid. This article is offered as a guide that will walk you through the process of opening a TreasuryDirect account and how it can potentially help secure your cash in these uncertain times.
Below is a brief video clip from our premium webinar. For more detailed information, please reference the article below.
More Concern in the Financial Sector & Why Having a Plan for Cash is Important
The current news cycle and media narrative suggests that it’s just regional banks that are facing challenges due to interest rate risk and depositors withdrawing funds to go to larger "too big to fail" banks. However, taking a closer look at the charts reveals that the situation may be more complex and not limited to just U.S. regional banks.
This is what appears to going on in Financial Sector in the US (XLF), which is comprised of the largest and most recognizable financial institutions in the US.
After breaking down from a bear pennant, we have a clean 5 wave drop from the February high. Until XLF can reclaim the $36 region, which is about 8.5% from current prices, then risk remains high.
International banks like the Royal Bank of Canada ($RY) also are exhibiting similar ugly trends. In fact, warnings are present in most major banks around the world. Here are some quick bullet points:
- Japanese banks Mitsubishi UFJ Sumitomo and Mitsui Financial are down 15%-17% since March 9th.
- The Commonwealth Bank of Australia is down ~12% since March 14th, and HSBC in England is down ~14% since late February.
- Itaú Unibanco, Brazil's top bank, is down ~18% since last November.
- Deutsche Bank is down another 21% from it January high, while the largest bank in France, BNP Paribas, is down 14% from its February high.
It appears that the risk doesn’t stop at the regional bank level but is international as well. Global banks are facing significant challenges, and it is unlikely the banking problems are over.
The Royal Bank of Canada ($RY) looks a lot like some of the bigger banks in the US.
An Alternative Solution to Uncertainty: A TreasuryDirect Account for an Extra Layer of Security
To tackle potential issues in the banking sector, we are taking a proactive approach with some of our cash. We are purchasing T-Bills directly from the U.S. government through a TreasuryDirect account, eliminating counter-party risks with banks. If the banking situation deteriorates or becomes systemic, funds in these accounts remain safe and secure.
The Appeal for T-bills vs. Bonds
Investing in four-week T-bills might be the prudent choice in this situation, as they carry no default risk compared to bonds and do not tie up your cash for a long period of time. As an example of what to expect, the four-week Treasury bill rate is around 4.5%, compared to 0.15% last year. This is much higher than the long-term average of 1.22%.
Sign up for I/O Fund's free newsletter with gains of up to 221% - Click hereSign up for I/O Fund's free newsletter with gains of up to 221% - Click hereClick here It is true that the U.S. government has never defaulted on its federal debt, which includes the umbrella of Treasury bonds, bills, and notes. However, it is also true that countries around the world default on their debt obligations, either partially or entirely, all of the time. We saw Iceland default on their external debt in 2008, and even recently Argentina defaulted on their sovereign debt in 2020 smack dab in the middle of the pandemic. In the event that the U.S. defaults on its debt, it’s speculated that T-bills are safer then bonds because of their shorter-maturity periods, lower interest rate risk, higher liquidity, and general overall market perception.
