In these times have ‘chicken money’ ready

The stock market seems to be taking uncertainty in stride. Neither economic concerns over the impact of tariffs nor the political concerns have so far dented enthusiasm for American stocks.

It’s been a long time sincewe’ve seen a bear market, and this column is not in the business of predicting future market direction. But it is important— if you’re nearing or in retirement— to have money set aside in safe, short-term, liquid investments.

That’s what I call "chicken money." It’s defined as money you can’t afford to lose.

Youwon’t get rich with chicken money, and youmay miss out on some stock market gains. But youwon’t get poor either. Chicken money investor say: I’m not as concerned about the returnONmy money as Iamabout the returnOFmy money!

Chicken money belongs in FDIC-insured banks, in money market deposit accounts orCDswith maturities of less than two years. And as I’ve often recommended, Treasury bills are a perfect chicken money investment— IOUs directly fromtheUnited States government. You can find a feature article on the subject on the homepage atTerrySavage.com,"Howto BuyTreasury Bills."

Chickenmoney concerns

In recent days, I’ve been hearing concerns about the security of chicken money investments because of news reports coming out ofWashington.

There have been stories about a plan to end FDIC insurance, amid a reshuffling of bank regulatory agencies. There have been stories about unauthorized and unprofessional people getting access to theU.S. Treasury payments systems.

While these fears seem far-fetched, it’s certainly enough to keep savers awake at night. But the entire idea of saving safely is to allowyou to sleepwell. So let’s put those concerns in perspective.

The importance of confidence

The entireU.S. financial system is based on confidence. The dollar is the benchmark of global trade and international finance. The potential consequences of a loss of faith in the dollar are immense.

First, theUnited States has a $36 trillion national debt. We borrowthat money globally, by sellingIOUs— Treasury bills (maturities up to two years), Treasury notes (fromtwo to 10 years) andTreasury bonds (longer-term borrowings).

Every year a good portion of that debt matures and must be "rolled over." That means theTreasury must findnewbuyers of its debt— global central banks, pension funds, institutions and individual investors whoopenTreasuryDirect accounts to buy T-bills (minimum purchase $100).

If confidence is lost in the future value of the dollar, or the future of theUnited States’ economy, global bond buyers will demand a higher rate of interest.

This year, around $9 trillion of existing debt will mature and must be refinanced— in addition to anynewdeficit-financing the Congress decides to incur. In fact, this year the Congressional BudgetOffice is predicting a deficit of about $2 trillion. That’s a lot of money to borrowin one year!

Rising short-term interest rates add to the cost of borrowing. Increased interest will increase our debt— just like it does on your credit card balances. Think about this: Interest on the national debt nowadds up to more than all non-defense discretionary spending combined!

That’swhy it’s important to attack the deficit in an organizedway— without creating uncertainty among thosewho lend us money at reasonable interest rates.

Whattoworry about

Americans live, spend, invest and plan our future in dollar terms. So, you should keep your chicken money in those shortterm insured deposits andT-bills. If the credibility of theU.S. financial system is called into question, you’ll have more to worry about than your savings in chicken money. And that’s the SavageTruth.

Terry Savage is a registered investment adviser and the author of four bestselling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.

Terry Savage

The Savage Truth