Transcription
If you're holding cash as a stock market investor, or maybe you're holding cash in an emergency fund, or maybe you have cash because you're saving up for something. If that's the case, then this information is going to be very important for you.
So, let me ask you, ideally, what do you want for your cash position? I mean, you want your cash to earn high interest rates, right? You want your cash to be safe, and you don't want your cash to be locked up like in a CD, and you don't want to have to minimize hassles, like you don't want to open up a bank account because you have better things to do with your life. So, minimal hassles, right?
Now, with that being said, I want to show you something that may help you, and I personally do this. And I just want you to know, I'll be crystal clear about this. This video is not sponsored. So, I just want to educate and help people.
So, ideally, with the cash that you have, you would just buy short-term treasuries from the US government. Now, I'll tell you, just stay with me here and hear me out. So, you can lend money to the US federal government for a short period of time. So, the US government sells Treasury bills with a duration of 1 month, 2 months, 3 months. And of course, you know, these T-bills, they're going to pay you interest, right? And obviously, these are safe because it's the US federal government. The risk of default is basically zero because they have money printers. And right now, the interest rates on T-bills are high, relatively high. They're above 4%. So, if you have spare cash, you should just park your money in T-bills.
But if you're going to say, "I don't know how to do that, and I don't want to learn how to do that." Then I'll tell you that you don't have to learn how to do that because there's an ETF on the stock market that does this for you. So, essentially, what I'm saying is that there's an easy and convenient way to park your cash in short-term treasuries on the stock market. So, you buy the ETF just like a stock, and then the ETF puts your money into short-term treasury bills, and then you get paid the interest every month. It's paid in the form of a dividend, and right now it's yielding above 4%.
So, I want to show you the ticker symbol is SGOV. So, SGOV, and you can buy SGOV on Robinhood, on Webull, on Charles Schwab, or whatever brokerage that you have.
So, here's how it works. I just pulled up a one-year chart of SGOV, and you're going to notice how the price goes up and down, up and down every month. So, I want to tell you what's going on here. So, let's say that you have some extra cash in your brokerage account and you want to earn interest on that cash. So, let's say it's March 4th, and you use your cash to purchase SGOV at $100.37. And then what's going to happen is that the price is going to creep up little by little until the end of the month. So, here on March 31st, it's at $100.67. And then each month, they pay you a dividend, and then the price of SGOV will decrease by the amount of the dividend that they pay you. So, in this case, for this month, it was at $100.67. They pay you a 32-cent dividend for the month, and then the price falls down to $100.35 on April 1st. And this cycle just repeats every month. So, it goes up a little, they pay you a dividend, the price falls. It goes up a little, they pay you a dividend, and the price falls. And it just keeps on going on. So, basically, they take your money, they invest it in short-term treasuries, and then you get the interest income as a dividend.
But I do want to point out that not every month is going to be the same. So, certain months, the dividend may be 35 cents, other months it may be 29 cents. It just depends on the interest rates on the T-bills. However, it's yielded 4.8% for the past 12 months, which is better than most savings accounts. And what's really cool is that you can just sell this SGOV whenever you need the cash.
Now, I want to be very clear about this. So, this SGOV is not an investment. This is like a savings account. So, don't have the expectation that this is going to make you rich. No, that's like expecting to get rich from interest income from your savings account. It's not going to happen. So, with SGOV, you're simply earning some interest in the form of dividends on your cash. So, this is perfect if you have cash and you're waiting, you know, for a dip in the stock market or a buying opportunity. You know, you might as well put that cash into SGOV and earn a competitive yield as you wait. Or if your savings account is paying you close to nothing, then you can park your money in SGOV if it yields a better interest rate.
And it's very important to understand that this is all based off the interest rates of short-term treasury bills. So, once the Federal Reserve starts cutting interest rates, then the interest rates on short-term T-bills will go down, and then this SGOV is going to yield a lesser amount. But in that scenario, interest rates for your savings accounts and new CDs will go down as well. But for the time being, SGOV may be appealing to you. If so, then, you know, I'm happy to have brought this to your attention.
And I just want you to be aware that SGOV is not the only ETF that does this for T-bills. So, there are competitors out there that offer something similar. But I want to give you a quick fact sheet on SGOV. The ticker on the stock market is SGOV. So, SGOV is an iShares 0-3 Month Treasury Bond ETF, and it's managed by BlackRock. The objective of the fund is to track the 0-3 Month Treasury Security Index, and the 12-month yield. The trailing yield is 4.79% as of April 2025.
Now, I want to tell you about the pros and cons of SGOV, and we'll start with the pros. So, the first pro is that, in my opinion, it's extremely low risk. So, SGOV only holds short-term US treasuries. So, these are considered, you know, obviously some of the safest assets in the world. And two, it's a solid yield for 2025. So, as of right now, SGOV is yielding around 4.8%, which is higher than most savings accounts or even CDs. And the third pro is the liquidity. So, unlike a CD where your money is locked up, SGOV trades on the stock market. You can sell it at any time during market hours. And the fourth pro is the monthly income. So, the distributions, they're paid on a monthly basis. And another pro is that you get protection from interest rate risk. That's because, I mean, they only hold bonds that mature within 3 months. Because of that, SGOV is barely affected by interest rate changes. So, that makes it more stable, even in a rising or falling interest rate environment. And another big pro are the tax advantages. So, interest income from US Treasury securities is exempt from state and local income taxes by federal law. Because SGOV's distributions come entirely from interest on US treasuries, the distributions carry the same exemption.
Okay. Now, let's go over the cons of SGOV. So, the first thing is that there's no FDIC insurance. But I don't want this to blow this one out of proportion. So, I'm going to explain this one. Okay. So, first of all, SGOV is not a savings account. So, if you're worried about bank failures or a banking collapse, you have to remember that this is not FDIC insured. However, in my opinion, this is still very low risk, but it's not technically risk-free. Okay?
Now, I want to explain this to you. It's very important that you understand this. So, ETFs, they're legally structured to protect your assets. So, SGOV, yeah, it's managed by BlackRock, but your investments, like your cash in this, it's not a part of BlackRock's balance sheet. So, let's just say, you know, worst-case scenario, BlackRock goes bankrupt. Okay? Well, ETFs, they're required by law to keep fund assets separate from the company's assets. So, if BlackRock goes under, I mean, the holdings, you know, SGOV's holdings, they're still going to be yours. And in this case, they're going to be treasury bills. So, that's again, very low risk. But in all fairness, I'll say that, yeah, if BlackRock did go bankrupt, then I'm sure that it would be a hassle to get your money back. But I mean, who are we kidding? If BlackRock goes bankrupt, then we're all going to have bigger problems.
Now, the second con, which I touched upon, is the yield sensitivity. So, if interest rates fall, then SGOV's yield is going to decrease accordingly. Now, the third con is that, of course, this requires a brokerage account. So, if you don't have a stock market account, then you're going to need one because you get your money into SGOV, like buying a stock. Now, if you don't have a brokerage account, but you want one to do something like this, then I'm going to leave a link for you down below to one where you get a signup bonus.
Now, moving on to the next con. So, I said this, and I'm just going to emphasize that this is not for long-term growth. So, this isn't a growth investment. Your returns are almost entirely from interest. So, the share price, it's designed to stay close to $100. So, I'm telling you, don't expect big gains. You know, that's not what this is for. This is more for short-term savings. Basically, a place to park your cash. And the last con I would say is the fee. So, the fee is 0.09% a year. So, if your yield is 4.8%, then after the fee, then you're going to really yield 4.71%. So, in my opinion, it's not much, but I do want to give you full disclosure. That's basically what BlackRock charges to make money for providing this service to people.
Okay. So, I just want you to know that I personally have been parking my cash in SGOV as I wait to buy the dips. So, I hope that this has been helpful. I'm just trying to give you an edge with this knowledge. I know that many people didn't even know that these types of products existed and were so easily accessible. So, please subscribe. I thank you for the support, and I wish you a very nice day. Take care.