Treasury bill became popular in 1920s after the first world war had ended. Governments wanted to to rebuild their economies after the devastating consequences of the first world war that lasted for four years starting in 1914. The thoughts of most economists at the time was to raise war debts that could help in the reconstruction and renaissance of their countries by way of treasury bill investment.
This move was very important at the time because not only were governments indebted to citizens, but they were also indebted to other countries. they wanted financial freedom, but before that could ever happen, they needed to raise super normal revenue in order to accomplish same.
Many years down the line, treasury bill still remains a very popular investment opportunity even here in Ghana. while I was in high school reading business management, I came across the term Treasury bill. right off the bat, I was intrigued about the whole idea and perhaps you have also experienced same. Many people have come to love treasury bill investment and I don't blame them. but where exactly did the love come from? honestly you'll wonder if they really know what it means to invest in treasury bill.
Before we zoom into treasury bill investment, let's first look at what treasury bill is.
Treasury bill is an acknowledgement that the government owes an individual or corporation a stated sum of money for a specified period of time and after maturity, the investor gets both his principal invested and an interest. Treasury bill investment is a risk-free investment in the sense that there's very insignificant probability of default. This is because governance is a flow concept. Therefore one is assured of his/her returns. On the other hand, because the risk of default is very low, the interest rate is also low which is consistent with the principle that " the higher the risk, the higher the returns and the reverse is true".
Now we have an idea of what a treasury bill is and to be honest, it's that simple. If this is all what treasury bill was about, and then deciding to invest or not should be easy to determine. There's one more thing to consider when making a treasury bill investment, which, " What interest rate is then appropriate?" Honestly, any interest rate that is above the inflation rate is acceptable.
This is not to sound technical but the farther away the returns on your T-bill from the inflation rate, the better it is. Suppose that your return on T-bill is 12% and inflation is 9%. The interpretation on this illustration is that, your real interest rate is only 3%. Because of this effect, sometimes T-bill is more of a hedging technique than an investment.
Now we're getting a little technical but it's important that you follow closely. A hedging technique is a position one takes to reduce his risk exposure as a result of a variation between a transaction date and a value date. 🤯🤯🤯. In simple terms, a hedging technique protects you from inflation which reduces the value of your money over time.
I guess you have the understanding now. If not, at least you got the idea. Now we'll take an example to reinforce your understanding. A lot of people have misconstrued the principles of T-bill and I don't want you to do same.
ILLUSTRATION
Ben has GHC 1,000.00 and decides not to buy a treasury bill
At the end of the year, Ben still has GHC 1,000.00
We deduct the effect of inflation of 9% then the value of Ben's money at the end of the year becomes GHC 910.00
Akos has GHC 1,000.00 and decides to buy T-bill
At a rate of 12% Akos gains GHC 120.00
At the end of the year, Akos has GHC 1,120.00
We now deduct the effect of inflation of 9%
Akos would be left with GHC 1,030.00
Akos is only GHC 120.00 richer than Ben. So, is this a good investment??? Maybe and maybe not
NOTE: T-bill in Ghana yields 3% on the average as net returns per year.
Here's the verdict, if you want to hedge your money against inflation then you're good to go. However, if you're looking for a good investment that yields higher returns then you might want to reconsider.
Where then do others invest for a slightly higher rate?
This article is purely my assessment of the the T-bill situation in the country and the investment I propose or it's company has not sponsored the articles neither have they contacted me for whatsoever reason. Again, this is my honest opinion and I pray you trust it.
Dalex finance has a fixed deposit investment which promises up to 16.2% which is highly competitive in the industry. Throughout my research I found this more commendable and a better alternative to T-bill. why do I have confident in Dalex Finance, because I believe in the competencies of the Managers at Dalex.
This is not a white blanket by the way, if anyone has a bad experience at Dalex Finance please leave a comment in the section below.
---Alem---
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