How to Use Treasury Bills as Leverage

Investing in Treasury bills, or T-bills, is a great way to secure your invest portfolio. This provides you the option of leverage for other investment strategies. Treasury bills are backed by the U.S. government.

Instructions

Difficulty: Moderate

1. Define your investing strategies. Treasury bills provide a low rate of risk and therefore provide a fixed low rate of return. So if you are a younger investor, you usually want to take more risk (meaning fewer Treasury bills.) If you are an older investor about to coast into retirement, a heavy load of T-bills will allow you to sleep peacefully at night.
2. Purchase Treasury bills. Sites like Treasury Direct will sell you the bills online. They are no longer paper but electronic. You purchase bills in multiples of $1,000. They are also sold for less than their price. Therefore, you might pay $950 for a bill that is worth $1,000 once it is mature. Obviously, the longer the length of the term, the less you pay. The shorter the duration, the more you pay. They are sold in periods from a few days to 26 weeks.
3. Acquire other securities. Using "leverage" is also known as going on margin. When you use leverage or margin, you are borrowing money from a bank to buy other securities. You can use $10,000 to purchase $20,000 of stock. Because T-bills are looked at as cash by many brokerage firms and banks, you can buy stock with that money while it is tied up in T-bills. This will allow you to earn money on your core principal, which will cut into the rate you will pay for using leverage or margin. So if you earn 4 percent on your T-bills, it will help offset a 10 percent margin rate.
4. Buy real estate. When you apply for a loan at a bank, they will look at your investment portfolio before giving you a loan. If you have T-bills in your portfolio, they will count that money as cash. Therefore, in the same way you can purchase additional stocks, you will be able to borrow more money from the bank to purchase more real estate. In the same manner as stocks, you will offset your interest rate with the return on your T-bills.