From time to time, people ask me where the county invests its money.  Some people want to know which banks we deposit our money, others what interest rate we receive.

Their questions reflect a common problem today.  Where can I earn a decent interest rate and keep my money safe?

The answer to that question, from our perspective, is high-quality commercial and municipal bonds.

[Note: Bonds are not FDIC insured.  They have risk that you should understand, as well as potential tax consequences.  You should read the entire prospectus carefully before making any investment.]

Right now, local banks pay between 0.1% and 0.3% APY on deposits.  Our bank deposits earn 0.25%, which is respectable given the economy.

High-quality commercial and municipal bonds, on the other hand, earn between 0.65% and 2% APY.  Although a low interest rate, it is two to six times more return than a money market account.

Given our short-term investment strategy, it is worth the effort involved.  It is also a reason why we have one person in our office responsible for actively managing our investments.  Our investment portfolio earned more in the first six months of 2012 than my predecessor did in his entire final year in office.

What We Own

Since May, we have invested $35-million of the county’s portion of the property tax levy (the amount set by the County Board).  Here is what we purchased as of June 28, 2012.

Instrument Amount Yield
Goldman 11/1/12 $ 2,000,000 0.7000 %
Union Bank 12/3/12 $ 2,500,000 0.4700 %
IBM Corp 11/29/12 $ 500,000 0.3700 %
GE Cap Corp 12/17/12 $ 2,000,000 0.3000 %
Blackrock 12/10/12 $ 3,000,000 0.4000 %
JPM 1/2/13 $ 2,500,000 1.0700 %
UBS 1/8/13 $ 2,500,000 1.0300 %
GE Cap Corp 1/8/13 $ 1,000,000 0.4730 %
Union Bank 1/14/13 $ 1,500,000 0.5300 %
Prudential 1/15/13 $ 2,000,000 0.7000 %
Union Bank 1/28/13 $ 1,000,000 0.8000 %
Bank One 1/30/13 $ 750,000 0.5300 %
Air Products 2/1/13 $ 250,000 0.3350 %
Merrill Lynch 2/5/13 $ 3,000,000 1.8000 %
Toyota Motor 2/11/13 $ 3,000,000 0.5100 %
GE Cap Corp 2/11/13 $ 1,150,000 0.3400 %
Sysco Corp 2/12/13 $ 850,000 0.3750 %
Union Bank 2/25/13 $ 850,000 0.5800 %
Toyota Motor 2/25/13 $ 1,000,000 0.5100 %
Honeywell 3/1/13 $ 400,000 0.3360 %
Morgan Stanley 3/1/13 $ 3,000,000 2.0700 %
Joliet Park B 2/1/14 $ 100,000 1.1500 %
RTA 4/1/14 $ 250,000 1.0440 %
RTA 6/1/14 $ 250,000 1.0640 %
Joliet Park C 3/1/15 $ 100,000 2.0000 %
Total $ 35,450,000 0.8347 %

Performance vs. Benchmark

Our goal is to earn 0.5% more than the Six Month U.S. Treasury Bill.  This means we expect to earn at least 0.65% in total yield.  As you can see below, we are beating our goal.

Six Month U.S. Treasury (6/28/12) 0.1500 %
Benchmark + 50 Basis Points 0.6500 %
Investment Yield 0.8347 %
Over/(Under) 0.1847 %

We’re Not Special

As investors, there is no difference between you and the county except scale.  We manage a lot of money, about $350 million.  And while we do use the size of our checkbook to reduce or eliminate bank fees (we saved $30,000 in fees since I took office), we cannot tell a bank what they will pay us for our deposits.

When we look for a safe place to earn better interest rates, CDs are not an option because they have so little return.  We have turned to the bond market for higher returns and better performance.

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