How Treasury Bills Work: A Portfolio Manager's Approach to Optimizing Liquidity Through Cash Alternatives

When financial planning firms need to fine-tune their cash positions, they don’t necessarily abandon liquidity entirely. In late January, Colorado-based Jim Saulnier & Associates made a strategic decision to reduce exposure to government debt securities, yet the approach reveals an important lesson about how modern investors manage short-term, risk-free assets. This move underscores a fundamental question: what makes treasury bills such a reliable tool for capital preservation, and how do they function within a diversified portfolio?

Understanding Treasury Bills: The Mechanics Behind Short-Term Government Securities

At its core, treasury bills represent a straightforward financial instrument: short-term debt obligations issued by the U.S. government with maturities of three months or less. When investors purchase treasury bills through exchange-traded funds like the Vanguard 0-3 Month Treasury Bill ETF (NASDAQ:VBIL), they’re essentially lending money to the federal government in exchange for interest income. The mechanics are simple but powerful. The government issues these securities at a discount to face value, and investors receive the full face value at maturity—the difference constitutes their return.

The appeal lies in the structure. Treasury bills carry virtually no credit risk because they’re backed by the full faith and credit of the U.S. government. They offer liquidity, meaning investors can easily buy and sell them. And they require minimal capital preservation effort compared to managing other income-producing assets. This is why they’ve become a cornerstone of how investors think about temporary cash parking and emergency reserves.

The Portfolio Move: Jim Saulnier & Associates Trims Treasury Bill Holdings

In a filing released January 29, Jim Saulnier & Associates disclosed that it sold 77,109 shares of VBIL during the fourth quarter, representing an $5.82 million transaction based on quarterly average pricing. By year-end, the fund still maintained a position of 141,880 VBIL shares valued at $10.70 million—not a full exit, but a meaningful adjustment.

The treasury bill stake now represents 5.55% of the fund’s $192.93 million in reportable assets under management. This positioning places the holding outside the fund’s top five investments. The broader portfolio remains anchored by allocation funds like AOR ($25.49 million, 13.2% of AUM) and AOA ($17.19 million, 8.9% of AUM), reflecting a balanced, globally diversified approach.

What makes this move instructive is what it doesn’t represent: an abandonment of capital preservation. Instead, it reflects strategic sizing—maintaining treasury bill exposure while acknowledging that excess idle capital carries an opportunity cost. The fund recognized that while treasury bills provide safety, some capital could be redeployed to growth-oriented instruments without sacrificing the portfolio’s core risk management.

How Treasury Bills Generate Returns: The Role of SEC Yield

Understanding how treasury bills produce income requires looking at the specific metrics that drive returns. As of January 28, VBIL shares traded at $75.62, up 0.75% over the past year. More importantly, the fund reported a 30-day SEC yield of 3.56%—this figure reflects the current income-generating potential of the treasury bills held within the fund.

The SEC yield represents the annualized income that treasury bills generate based on their current pricing and the underlying government securities’ interest rates. When the Federal Reserve maintains interest rate policy, these yields adjust accordingly. At 3.56%, investors receive meaningful income without taking on equity market risk. The ETF charges only a 0.06% expense ratio, meaning nearly all of the yield flows directly to shareholders.

This efficiency matters for portfolio construction. Treasury bills work by producing income with minimal friction—no complex derivatives, no credit analysis required, no volatility concerns. The expense ratio of just six basis points illustrates how low-cost treasury bill investing has become through modern ETF structures.

Treasury Bills Versus Other Cash Alternatives: Comparing Safety, Liquidity, and Returns

The decision by Jim Saulnier & Associates to trim but retain treasury bill exposure becomes clearer when comparing VBIL to other cash management options. Short-term Treasury instruments sit at one end of the risk spectrum: government-backed, liquid, and predictable. Money market funds offer similar features but sometimes carry slightly higher expenses. Ultra-short-duration bond funds provide marginally higher yields but introduce some price volatility.

VBIL occupies a unique position. It offers genuine capital preservation—price swings are minimal because the underlying treasury bills mature within 90 days. It delivers consistent income through the SEC yield. It remains instantly tradable, with market capitalization exceeding $4.64 billion ensuring deep liquidity. And the expense ratio of 0.06% remains among the most competitive in the cash alternative space.

This is precisely how treasury bills work in practice: they provide a stable return (the 3.56% SEC yield) in exchange for accepting near-zero price appreciation potential and the opportunity cost of holding non-growth assets. For investors balancing risk and reward, treasury bills offer a predictable home for capital that needs protection.

Sizing Cash Positions: What This Transaction Reveals About Risk Management

The transaction by Jim Saulnier & Associates illuminates a broader principle about portfolio construction: cash is not a residual asset to be discarded or grabbed at indiscriminately. Instead, it requires deliberate sizing based on investment objectives, time horizons, and market conditions.

Even after reducing its treasury bill position by $5.82 million, the fund maintained $10.70 million in VBIL holdings, preserving over 5% of total assets in cash-like instruments. This buffer serves multiple purposes. It provides dry powder for opportunistic rebalancing. It acts as a psychological anchor, reducing pressure to chase performance during market turbulence. And it anchors the portfolio’s risk profile, allowing growth-oriented holdings to operate without forcing the entire strategy into an all-in stance.

The treasury bills held in this position continue to work reliably—generating income through the government interest mechanism, maintaining liquidity through the ETF structure, and preserving capital through government backing. The fund’s decision wasn’t to question whether treasury bills work; it was to ask whether this much treasury bill exposure remained optimal given the current investment landscape.

The Bottom Line: Treasury Bills Serve a Strategic Purpose

Understanding how treasury bills work reveals why sophisticated investors continue to deploy them despite near-zero correlation with equity market gains. They function as designed: converting short-term government debt into accessible, income-producing holdings with minimal frictional costs. The 3.56% SEC yield, the 0.06% expense ratio, and the $4.64 billion asset base of VBIL exemplify how modern treasury bill investing has evolved into an efficient, scalable solution for capital preservation.

For investors seeking to balance growth and safety, treasury bills represent a proven mechanism for managing cash positions without sacrificing returns entirely. Jim Saulnier & Associates’ strategic reallocation demonstrates that the question isn’t whether treasury bills belong in a portfolio—it’s how much allocation they deserve relative to higher-returning alternatives. That sizing decision, informed by interest rate environments and portfolio objectives, remains the true art of risk management.