Most traders consider Treasury payments—the short-term, “risk-free” U.S. authorities debt—as the last word secure haven. No credit score danger, extremely liquid, assured by Uncle Sam. That is all true on a nominal foundation. T-bills have by no means had a drawdown or misplaced cash.
Nevertheless we reside in a “actual” world, which means, all that issues is “after inflation”, or what is named “actual returns”.
Here’s a stat that blows up standard knowledge: Throughout the twentieth century, the peak-to-trough actual drawdown for U.S. T-bills, after adjusting for inflation, was almost -50%. (10-12 months US authorities bonds have been worse with a 60% max actual drawdown.)
That’s proper. Your “secure” funding quietly misplaced over half its buying energy.
I polled traders to see what number of really understood this uncomfortable actuality.
The bulk, almost two thirds of respondants, underestimated the danger. A full 16% assumed T-bills had zero or small drawdownxs. And it’s no shock—this isn’t one thing Wall Avenue talks about when pitching security and safety.
What you see is a graveyard of misplaced buying energy throughout prolonged inflationary regimes—World Wars, the Nineteen Seventies, you title it. On paper, your T-bills stayed intact. However in actual phrases, your wealth slowly evaporated.
Even worse, in the event you’re a tax payer, the return on bonds after taxes is mainly….zero. by way of our mates at Aptus.
The lesson?
There’s no such factor as a free lunch. Even the most secure belongings carry hidden dangers—typically within the type of inflation erosion, alternative price, or long-term drawdowns that fly below the radar.
If you happen to park all of your capital in “secure” money equivalents for many years, historical past exhibits you’re nonetheless in danger—simply in a special, quieter manner. We’ll come again to this subject later after we look at what precisely is the most secure asset?
