Why You Should “T-Bill and Chill” Instead of Using a Savings Account, with Cullen Roche

What It Covers

Cullen Roche, founder of Disciplined Funds and author of "Your Perfect Portfolio," explains why no single investment strategy works for everyone. He breaks down specific portfolio models including the 60/40, Buffett's 90/10, T-bill strategies, and the Boglehead three-fund approach, emphasizing how to match portfolio construction to individual time horizons, behavioral tolerance, and life circumstances rather than following generic allocation rules.

Key Questions Answered

• •T-Bill Direct Ownership: High-yield savings accounts and money market funds buy treasury bills, take the full yield plus tax advantages, then pass along reduced returns to customers while charging effectively 0.5-1% in hidden costs. Buying T-bills directly through brokerage accounts or building a simple three-rung ladder (3-month, 6-month, 12-month maturities) captures the full yield and state tax exemptions, requiring only one trade every three months to maintain.
• •Income as Bond Allocation: Employment income functions as a synthetic fixed-income allocation in younger investors' portfolios, providing predictable cash flow similar to bonds. This embedded bond allocation justifies aggressive 100% stock positions during working years. The risk emerges at retirement when this income disappears, creating sequence-of-returns vulnerability. Michael Kitces' bond tent strategy addresses this by temporarily increasing bond allocations around retirement age, then reducing them later as sequence risk diminishes.
• •60/40 Behavioral Design: The 60/40 portfolio originated with Walter Morgan's Wellington Fund before the Great Depression, falling 40% while other portfolios dropped 80%. The 40% bond allocation exists primarily for behavioral stability rather than optimization. During market crashes, investors feel grateful for the bond cushion; during bull markets, they tolerate underperformance. This constant mild dissatisfaction across all market conditions prevents panic selling, making diversification about learning to hate some portfolio component continuously.
• •Factor Tilting Risks: Bill Bernstein's portfolio adds small-cap and value tilts to basic indexing, attempting to capture academic factors identified by Fama and French. However, this constitutes implicit stock picking based on historical outperformance expectations. Small-caps have underperformed large-caps recently despite decades of academic support. Investors pursuing factor strategies must acknowledge they're making active bets that specific return patterns will continue, contradicting Bogle's "own the whole haystack" philosophy.
• •Sequence Risk Window: The danger zone for portfolio withdrawals concentrates in early retirement years, not late retirement when running out of money seems more intuitive. A retiree with one million dollars in 2008 experiencing a 40% decline faces an effective withdrawal rate jumping from 4% to 7-8% while drawing the same dollar amount from a smaller base. This sequence-of-returns risk decreases as retirement progresses and spending patterns stabilize, potentially justifying more aggressive allocations in later retirement years.
• •ESG as Stock Picking: Environmental, social, and governance investing removes specific companies from broad indexes based on personal values, but this constitutes active stock picking with predictions about future performance. Companies like ExxonMobil may transform into renewable energy leaders within 25 years, making current exclusions potentially counterproductive. A more effective approach involves owning the full market index for maximum returns, then donating the incremental gains to causes aligned with personal values.