Rule #1 Finance Blog

With Investor Phil Town

RULE #1 QUESTION OF THE WEEK: 2 QUICK QUESTIONS ABOUT IRAS AND BANKING

From Roland:

Just finished reading RULE #1 and really enjoyed it.  I have 2 questions for you:

1. Can you invest in 3 month t-bills in a Roth IRA?

2. If so, if the 3 month t-bill stays over 4% why not just invest in that every 3 months and then roll over your money and the earnings each time it comes due and then continue to add to the Roth like normal?

Phil Town:

Sure you can do 3-month t-bills in a Roth.  They pay 4% per year, so that means 1% per quarter and you'll need to roll it into the next t-bill to get 4% for the year.

From Rick:

As I search for companies that stand up to our criteria, I'm coming across banks and holding companies that seem to have wonderful numbers.  The question is, do I treat them like any other sector or do I have to be aware of anything that would be specific to banks and/or holding companies?

Phil Town:

Be sure you are watching the PE ratios for banks.  The historical PE is usually quite low relative to the growth rate.  Also be very aware of the direction of the group.  Banks tend to move together.  And finally, don't forget to do a good job on the 4Ms with a particular emphasis on Moat.  Is your bank just a bank or does it have something going on that locks in the customer?  (By the way, Buffett like Wells Fargo at one point — so why not do a bank?)

Now go play.