The title and pic may suggest that this writing will discuss the United States Department of The Treasury. A reasonable assumption. But in fact, I will be writing here about YOUR department of the treasury. Oh, you didn’t know you had one? Think again.
Treasury:
Etymology. From Middle English tresorie, from Old French tresorie, from tresor (“treasure”), from Latin thēsaurus (“treasure”), from Ancient Greek θησαυρός (thēsaurós, “treasure house”).
So, if you have or are intending to have any savings in any form you have a Treasury. Regarding it as the activity or perhaps repository of your treasure and wealth is the right view. Treasury Assets can consist of many forms of value and wealth like currency or as said in olden times coin of the realm, stocks, bonds, real estate, bitcoins, gold and silver etc. These all have value, some more enduring than others. Some maintain or rise in value while others lose value. The general approach in well run Treasuries is to have a mix of very liquid assets like cash, some stocks, maybe bonds for the supposed safety, some real estate owned for investment and some other assets that can be fairly quickly liquidated into cash because they have an open and active marketplace. Bitcoin, Gold and Silver and other metals fit this latter category as, near liquid assets. Real Estate is less liquid because you have to market and find a buyer then there is the time to close on the sale. It can still be a good holding for your Treasury Assets and that includes rental properties.
A Treasury implies safe storage of valuables. That does not necessarily mean you have to get a 5000 lb vault, but it could mean a secure drawer with a locked case or accounts at Banks, Credit Unions, Brokerages and more. Cash is usually held in a Bank though a Money Market is very common as well and some are direct, others at banks and yet others at brokerages. These are as liquid as assets get being CASH in a flash. Actual cash on hand works fine too if safely stored and not in too large an amount. Remember that cash and some other assets are bearer instruments meaning whoever holds ‘em owns ‘em. Gold and Silver on site in small amounts is OK but larger physical holdings need a reliable and accessible vault. Brinks offers good safety and has many locations in the US and other countries if preferred. I do not suggest using a Bank Safe Deposit Box.
Many companies have a sub-department under their Treasury whose job is to invest or trade company funds for a profit. Some, like Michael Saylor’s Micro Strategies Inc. holds Bitcoin which has its own unique digital holding process. The concept here is to make the Treasury money as it were generate more money. This becomes a contribution to the overall push for profits. In companies that make widgets, they still often invest available funds in stocks, bonds et al and in very good times when markets are moving up they might even borrow to invest. That adds risk of course, because leverage seems great on the way up but it bites hard on the way down. The classic double edged sword.
My own Treasury uses the following Mix:
- Cash on Hand
- Cash held in Banks
- Stocks, Bonds, ETFs, Mutual Funds in Brokerage accounts
- Gold and Silver in physical form
I hesitate to state what percentage of the total available funds be placed in any particular asset but at times I favor Stocks or Bonds or both and at other times I keep powder dry by having more liquidity holding cash. A typical suggestion on the bulleted items above might be 15% Cash in Hand, 25% cash in banks, 25% stocks, 25% bonds, 10% Gold and Silver (physical). When I say physical gold and silver I have reasons but some CFOs and their Treasurers prefer Gold and/or Silver ETFs. I am in the physical camp.
Making a profit on available funds may not the main activity of a Treasury but it can readily become 10-20% of the profit stream mix and that is substantial considering that profit could be lower by that same percentage if left undone.
Some companies try to use the safest investments possible and in recent times US Treasury Bills or the short end of Bonds like 2 year US Bonds are heavily used. I will not make a case against this practice but in spite of its reputation as the safest asset on Earth, even US Bonds and Bills carry some risk. Keep in mind the inverse relationship between rates and bond values. Rates go up, bond values go down and vice versa.
A company making $5,000,000 gross at a 20% Net has $1,000,000 in profit but Treasury activities could increase that by another $100,000 to $200,000. Of course, losses can and do occur in investments so safety can be a primary concern which tends to put more into US and other high quality Bonds and more into Money Markets, Gold and Silver. Once in a while a certain Treasury investment rides a wave like the recent 30% fast rise in the value of Gold. Fast rising assets can also fall fast so active management is a must whether internally controlled or professionally hired out to an investment firm or Hedge Fund.
This is nothing more than a very basic Treasury primer, but I hope it gives you some indication of what a Treasury is and does. There is more to it and I will try to write again on this important topic. Meanwhile, you can begin thinking you have a Treasury because you do.
Best,
Donn Marier
DM-Your Own CFO