Should You Invest in T-Bills or Stocks in 2025?

T-Bills explained

T-Bills are short-term debt securities issued by governments to raise funds. They are considered one of the safest investment vehicles because they are backed by the issuing country’s financial credibility.

Investors purchase T-Bills at a discount to their face value and receive the full value upon maturity, with the difference representing their return.

For instance, if you buy a T-Bill at $950, and it matures at $1,000, your profit is $50.

The most recent six-month T-Bill auction conducted by the Monetary Authority of Singapore (MAS) saw a cut-off yield of 3%, down from 3.08% in the prior auction, as reported in the Business Times.

Despite the slight drop, demand increased notably, with a bid-to-cover ratio of 2.45, compared to just 1.96 in the previous auction.

This means investor appetite remains strong, reflecting confidence in T-Bills as a reliable investment option, even amid modest yields.

Pros and cons of T-Bills

Pros:

• Low Risk: Backed by the government, T-Bills offer guaranteed returns.

• Short Duration: With maturity periods typically under a year, they provide flexibility in managing your money.

• Steady Demand: High bid-to-cover ratios showcase their trustworthiness.

Cons:

• Low Returns: Yields are comparatively modest, especially in a rising interest rate environment.

• Not Ideal for Long-Term Growth: T-Bills are meant more for stability than wealth accumulation.

Who should invest in T-Bills?

T-Bills suit risk-averse investors looking for a short-term, predictable way to grow their savings.

If you’re saving for near-term goals such as funding a vacation or managing liquidity, this is an excellent option.

They are also attractive for CPF investors seeking safer additions to their accounts.

Stocks explained

Stocks represent partial ownership in publicly listed companies.

By purchasing shares, you participate in their growth and profitability.

Stocks are often associated with higher risks but offer significant potential for long-term returns.

Take blue-chip companies or industry leaders like DBS Group (SGX: D05) and Singapore Exchange (SGX: S68).

Investors who poured money into these companies over the long term have seen strong performance and shareholder rewards, including dividends.

For instance, DBS delivered an impressive 12-month share price return of 44% for 2024.

Pros and cons of stocks

Pros:

• Higher Growth Potential: Historically, stocks outperform other asset classes over time.

• Income Through Dividends: Many Singapore-listed companies provide steady dividend payouts.

• Liquidity: Stocks are easy to transact, offering flexibility when accessing your capital.

Cons:

• Volatility: Share prices can rise or fall unpredictably, especially amid uncertain economic conditions.

• High Risk: Some stocks may result in significant losses when their businesses perform poorly.

• Requires Research: Stock-picking demands time and knowledge to identify profitable companies.

Who should invest in stocks?

If you have a higher risk appetite and aim for long-term wealth building, stocks are a good option.

Younger investors, in particular, benefit from a longer time horizon to weather market fluctuations and enjoy compounding.

Making your choice

Match investments to your goals

Start by clarifying your financial objectives. If you’re saving for a short-term goal, such as buying a car within a few years, T-Bills’ low risk and stability may suit you.

Conversely, for building wealth over decades, stocks’ growth potential makes them a more fitting choice.

Risk tolerance matters

Evaluate how comfortable you are with risk.

If market volatility stresses you out, T-Bills offer peace of mind.

However, if risk excites rather than scares you, stocks could deliver the higher returns you’re hoping to achieve.

Diversify for success

Why choose just one? Many successful investors build diversified portfolios that include both T-Bills and stocks.

Balancing short-term safety with long-term growth can protect your investments from volatility while generating steady returns.

Both options offer unique advantages and drawbacks, and often, the best strategy involves leveraging both to build a balanced investment portfolio.

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Disclosure: Joanna Sng owns share of DBS Group and Singapore Exchange.

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