I-Bonds and EE Bonds in Portfolio [in your 20's]
I-Bonds and EE Bonds in Portfolio [in your 20's]
Hello,
With the new I-Bond rate at 3.5% I definitely plan on buying $10k this year to replace high savings accounts which are only yielding around .50% these days.
That being said, I'm curious how I-Bonds and maybe even EE-Bonds should be thought about in my overall portfolio?
I'm in my 20's with 401(K) and ROTH IRA accounts [Total value approaching $100k].
My current AA is 90% equity and 10% bonds.
Would it make sense to treat EE / I-Bonds as part of my overall bond portfolio given my long time horizon?
With the new I-Bond rate at 3.5% I definitely plan on buying $10k this year to replace high savings accounts which are only yielding around .50% these days.
That being said, I'm curious how I-Bonds and maybe even EE-Bonds should be thought about in my overall portfolio?
I'm in my 20's with 401(K) and ROTH IRA accounts [Total value approaching $100k].
My current AA is 90% equity and 10% bonds.
Would it make sense to treat EE / I-Bonds as part of my overall bond portfolio given my long time horizon?
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Yes.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Is the taxation of EE and I bonds the same?
Only federal taxes @ redemption?
Only federal taxes @ redemption?
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Yes but be careful. If you buy in your twenties, that means they'll mature in your 40s when you will probably in your peak earning years.
I know some Fire people are timing their EE and I-bonds purchased to mature when they retire early and before SS.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I would endorse using Series I savings bonds as part of an ongoing emergency fund (though the redemption rules make them an imperfect substitute for a HYSA when the expectation is that the money will be needed within five years).csm14 wrote: ↑Wed May 05, 2021 9:51 pm Hello,
With the new I-Bond rate at 3.5% I definitely plan on buying $10k this year to replace high savings accounts which are only yielding around .50% these days.
That being said, I'm curious how I-Bonds and maybe even EE-Bonds should be thought about in my overall portfolio?
I'm in my 20's with 401(K) and ROTH IRA accounts [Total value approaching $100k].
My current AA is 90% equity and 10% bonds.
Would it make sense to treat EE / I-Bonds as part of my overall bond portfolio given my long time horizon?
I see less of a role for Series EE savings bonds for someone who is more than 20 years from retirement. The combination of the doubling and tax deferral would like mean you are forced to realize the income from them during your peak earnings years (and presumably highest marginal tax rate years). I'd probably keep any taxable accounts invested in stock and any bonds (if you must hold them at all) in the 401k.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
While EE Bonds double in 20 years, both I and EE Bonds don't reach final maturity until 30 years. However, for all practical purposes, you probably want to consider the EE Bonds as 20 years bonds and the I Bonds as anything from one year up to 30 year bonds.MishkaWorries wrote: ↑Wed May 05, 2021 10:03 pmYes but be careful. If you buy in your twenties, that means they'll mature in your 40s when you will probably in your peak earning years.
I know some Fire people are timing their EE and I-bonds purchased to mature when they retire early and before SS.
Keep in mind that if you have children and meet the income limits, you can use the I Bonds tax-free for your or your children's qualifying educational expenses.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I bonds yes. EE bonds in your 20s, pump the brakes a little. I don't know your current tax rate, but it is likely to be higher in 20 years and that is when you'll want to realize the gain on your EE bonds. If you do it before 20 years, you only get 0.1% interest. If I were speaking to my 20 year old self, I'd plan on maxing out the 401k and Roth each year after paying my credit card to 0, making sure my HSA is funded (and not being spent), making sure I'm on track to pay off my student loans, then do I bonds. For money left over, I'd do a taxable small cap index fund. This money will also grow nearly tax free and you aren't induced to cash it in at year 20, but can continue to let it grow. Also, if you run into a snag or need the money, it will be alot easier to sell part of the index fund than to sacrifice EE bonds that will only pay 0.1% before 20 years.
I think EE bonds are a great play for someone 20 years out from retirement (?starting at age 40-45?) who wants to verify they have some money on hand, especially if they retire before taking their social security. The taxes on your income are deferred and you'll be paying those taxes when you aren't having any more W2 income.
b
I think EE bonds are a great play for someone 20 years out from retirement (?starting at age 40-45?) who wants to verify they have some money on hand, especially if they retire before taking their social security. The taxes on your income are deferred and you'll be paying those taxes when you aren't having any more W2 income.
b
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
The thing to keep in mind is these will mature in one's 50s (if bought in there 20s). If one's planning to retire in their 50s, that could be ok. That said, it's always be possible one's 50 yr old self has different plans
As noted by others, EE bonds double in 20yrs, but continue to earn (very small) interest after. The sweet spot is cashing out at the doubling, which gives a ~3.6% annualized return, which would be cashing in your 40s. Holding to 30yrs is closer to ~2.3% (maybe 2.4% factoring in the small amount of interest), which would be cashing in your 50s. This is more than say total bond is yielding ~1.3%. Though a better comparison might be 30yrs STRIPS (using EDV as stand-in here), which is also yielding ~2.3%. The benefit of these latter options is they can be held in one's tax-deferred account. Also one can defer cashing these out for a long time (at least until RMDs occur). So given the peculiarities of EE bonds, being early career, etc., it may make more sense to go with something like EDV. This all is assuming that bonds makes sense (some people opt for all stocks in their 20s).
The case for EE bonds can become more compelling as others have alluded to when one has a very high savings rate, is really filling all of the buckets including a healthy amount in taxable, and is planning to retire early. In this case one may opt to start accumulating savings bonds as a way to get some additional bonds in taxable with some more preferential tax treatment and perhaps as an alternative to other taxable bonds like munis. This story probably starts to make more sense in ones 30s (doubling in 50s and maturing in 60s) or really in ones 40s (doubling in 60s and maturing in 70s). Though maybe there's something I'm overlooking here.
As noted by others, EE bonds double in 20yrs, but continue to earn (very small) interest after. The sweet spot is cashing out at the doubling, which gives a ~3.6% annualized return, which would be cashing in your 40s. Holding to 30yrs is closer to ~2.3% (maybe 2.4% factoring in the small amount of interest), which would be cashing in your 50s. This is more than say total bond is yielding ~1.3%. Though a better comparison might be 30yrs STRIPS (using EDV as stand-in here), which is also yielding ~2.3%. The benefit of these latter options is they can be held in one's tax-deferred account. Also one can defer cashing these out for a long time (at least until RMDs occur). So given the peculiarities of EE bonds, being early career, etc., it may make more sense to go with something like EDV. This all is assuming that bonds makes sense (some people opt for all stocks in their 20s).
The case for EE bonds can become more compelling as others have alluded to when one has a very high savings rate, is really filling all of the buckets including a healthy amount in taxable, and is planning to retire early. In this case one may opt to start accumulating savings bonds as a way to get some additional bonds in taxable with some more preferential tax treatment and perhaps as an alternative to other taxable bonds like munis. This story probably starts to make more sense in ones 30s (doubling in 50s and maturing in 60s) or really in ones 40s (doubling in 60s and maturing in 70s). Though maybe there's something I'm overlooking here.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Yes, unless you choose to pay the tax every year.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
That is a fair consideration.MishkaWorries wrote: ↑Wed May 05, 2021 10:03 pm Yes but be careful. If you buy in your twenties, that means they'll mature in your 40s when you will probably in your peak earning years.
However even with a relatively high federal tax rate (32%): 3.53% * 0.68 = 2.4% after-tax-rate is still very attractive (plus some extra minor benefit from deferral).
Of course it depends on individual circumstances. For example if one has access to a stable value fund, it is probably preferable.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I agree the after tax rate is OK (certainly not great), and do own both I Bonds and EE Bonds. However I’m considering them like an annuity to redeem each year during retirement.ivgrivchuck wrote: ↑Thu May 06, 2021 1:26 amThat is a fair consideration.MishkaWorries wrote: ↑Wed May 05, 2021 10:03 pm Yes but be careful. If you buy in your twenties, that means they'll mature in your 40s when you will probably in your peak earning years.
However even with a relatively high federal tax rate (32%): 3.53% * 0.68 = 2.4% after-tax-rate is still very attractive (plus some extra minor benefit from deferral).
Of course it depends on individual circumstances. For example if one has access to a stable value fund, it is probably preferable.
I bought I Bonds in most of my 30s, and started EE Bonds purchases in my late 30s, to try to time an early retirement.
Maybe I could have bought EE/I Bonds earlier, because I do have Muni-Bonds and Interm-Treasuries in taxable. However, Mega-Backdoor Roth IRA, Backdoor Roth IRA, and purchases of EE/I Bonds are slowly shifting taxable bonds to tax protected/deferred accounts. In my twenties I was buying almost all stock index funds, which worked out better than taxable bonds.
I wouldn’t invest in I Bonds prior to maxing 401k and Roth IRA. Also, I’d really only consider I Bonds in my 20s, and based on OP’s asset allocation, that’s almost all that’s needed: 401k maxed out each year, Roth IRA maxed out each year, and if bonds are needed to maintain his allocation then buy $10k I Bonds. If there’s money left over then maybe consider EE Bonds, but EE Bonds probably won’t be needed with a 90/10 allocation.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I view an EE bond as a 20 year CD with an extremely harsh early withdrawal penalty.
One item to consider is how certain you are you can hold an EE bond for 20 years without needed to liquidate it. Every year that goes by the "penalty" increases (in terms of effective interest rate). I would only buy an EE bond if you are 95+% certain you won't liquidate it before 20 years.
For someone in their 20's they may have some very large expenses in their 20 year horizon, such as new home purchase, unemployment, wedding/marriage, kids, education expenses, etc.
After 20 years, an EE bond should be worth more than an I bond. However, an I bond is more flexible. You can use it as an inflation adjusted EF or a 30 year, zero coupon bond with a real yield of 0%.
One item to consider is how certain you are you can hold an EE bond for 20 years without needed to liquidate it. Every year that goes by the "penalty" increases (in terms of effective interest rate). I would only buy an EE bond if you are 95+% certain you won't liquidate it before 20 years.
For someone in their 20's they may have some very large expenses in their 20 year horizon, such as new home purchase, unemployment, wedding/marriage, kids, education expenses, etc.
After 20 years, an EE bond should be worth more than an I bond. However, an I bond is more flexible. You can use it as an inflation adjusted EF or a 30 year, zero coupon bond with a real yield of 0%.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Based on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Right now ibonds are kind of a free lunch. There isn't any other risk free bond investment that returns inflation in the short or intermediate term.csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
If you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
There is a 10k/yr limit for I-Bonds, which may be a negative attribute for some high savers.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
You can get up to $5k more I Bonds through the tax refund and $10k by using an EIN for a sole proprietorship. (I have one for my solo 401k.) Of course I created an account with the EIN last month and promptly forgot the password, which locked me out, but also allows me to reconsider the need for an additional allocation of I Bonds given that I hold six figures in them. I cashed out some of them a few years ago to pay down the mortgage since the rates were low at that time and my mortgage interest rate exceeded the rate of I Bonds.
I think EE Bonds might be useful if one was planning to have children, and planned to have income below the cutoffs for I Bond tax exemption, which may be too low for professionals or the upper middle class (around $100k for a single, $150k for a couple). Under current financial aid rules, the asset is valued at the amount it could be cashed at, so in year 19 it would be value at around $10,200 but suddenly spike in year 20 to $20,000. Of course, this could change within 20 years.
My order of funding savings is 457 to match, Roth, 457 to max, I Bonds, EE Bonds. I started buying EE Bonds last year. I'm in my late 30's and probably could have started buying EE's a few years earlier, but at that time it was more possible I would be working in my 50's. EEs are an opportunity to create another tax advantaged account. I don't have an HSA because I have a traditional health plan, and don't have a 529 because I don't have children.
I think EE Bonds might be useful if one was planning to have children, and planned to have income below the cutoffs for I Bond tax exemption, which may be too low for professionals or the upper middle class (around $100k for a single, $150k for a couple). Under current financial aid rules, the asset is valued at the amount it could be cashed at, so in year 19 it would be value at around $10,200 but suddenly spike in year 20 to $20,000. Of course, this could change within 20 years.
My order of funding savings is 457 to match, Roth, 457 to max, I Bonds, EE Bonds. I started buying EE Bonds last year. I'm in my late 30's and probably could have started buying EE's a few years earlier, but at that time it was more possible I would be working in my 50's. EEs are an opportunity to create another tax advantaged account. I don't have an HSA because I have a traditional health plan, and don't have a 529 because I don't have children.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Why are you holding bonds in your Roth IRA?
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Fair question. I did it out of principle just to have some extra diversification but I think I'll keep buying I-Bonds and just move to 100% equities.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
It sounds like you're tempted by the 3.5% inflation adjustment for ibonds. You have to ask yourself how you'd feel if inflation goes back down to the level it's been at for a decade or more. I had a lot of ibonds, but after years of a minimal inflation adjustment, and the stock and bond markets doing quite well, it was too hard to justify keeping. I also locked in 7-year CDs at 6.25% in 2007, which far exceeded ibond returns and were just as safe. If you have bond funds in a retirement account, one VG paper showed that they actually do better in a rising interest rate environment than in a falling one over time, so there's a case for diversification in fixed income to cover all economic conditions. The $10k limit is a good natural limit--people on here used to have an enthusiastic thread called 'backing up the truck' to load up on TIPS and ibonds, just before a decade of minimal inflation and the biggest stock bull market in history. Now with sudden inflation people are firing up their trucks again, but you have to ask yourself if you'll be able to keep ibonds for an extended period, especially if there are other forms of fixed income paying out much higher yield. Then you have the old argument that your inflation return is set by the government according to a certain basket of goods and services, and if inflation increases significantly over an extended period of time, there will be huge pressures to find ways to decrease the inflation increases paid to retirees, as well as from interest on the national debt, so ibond/TIPS inflation adjustments could be affected as well. While it seems unlikely now, so were a lot of government emergency measures that seemed unthinkable before. If you're young, you've seen some crazy things the past couple of years in the investing and government worlds, so there will likely be more unusual times in the future decades. So be diversified but don't buy ibonds, crypto, gas, or toilet paper, out of panic, FOMO, or greed.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I Bonds are a substitute for bonds and is never intended as a substitute for stocks. Based on past history they've done well, albeit with a higher base rate.
20 year performance of $10,000, May 2001-May 2021:
I Bond: $27,548 (that 3% fixed rate helps)
EE Bond: $21,008
VBMFX (Vanguard Total Bond): $23,365
VTSAX (Vanguard Total Stock Market Admiral): $54,666
10 year performance of $10,000, May 2011-May 2021:
I Bond: $12,020 (with a 0% fixed rate)
EE Bond: $11,144
VBMFX: $13,647
VTSAX: $37,605
This of course excludes tax drag with the mutual funds, as well as the state taxation on mutual funds for those who live in states that tax investment income.
Back in 2011 you could readily find 3% 10 year CDs, which today with compounding would be $13,439. Those haven't existed for a while now, although in 2019 there were a few banks offering 3%+ on 10 year CDs which, in hindsight, would probably beat I Bonds when held to maturity.
20 year performance of $10,000, May 2001-May 2021:
I Bond: $27,548 (that 3% fixed rate helps)
EE Bond: $21,008
VBMFX (Vanguard Total Bond): $23,365
VTSAX (Vanguard Total Stock Market Admiral): $54,666
10 year performance of $10,000, May 2011-May 2021:
I Bond: $12,020 (with a 0% fixed rate)
EE Bond: $11,144
VBMFX: $13,647
VTSAX: $37,605
This of course excludes tax drag with the mutual funds, as well as the state taxation on mutual funds for those who live in states that tax investment income.
Back in 2011 you could readily find 3% 10 year CDs, which today with compounding would be $13,439. Those haven't existed for a while now, although in 2019 there were a few banks offering 3%+ on 10 year CDs which, in hindsight, would probably beat I Bonds when held to maturity.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
What use would that information be? Interest rates are different now.ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Thanks for the statistics. Very informative.calwatch wrote: ↑Sat May 15, 2021 4:39 pm I Bonds are a substitute for bonds and is never intended as a substitute for stocks. Based on past history they've done well, albeit with a higher base rate.
20 year performance of $10,000, May 2001-May 2021:
I Bond: $27,548 (that 3% fixed rate helps)
EE Bond: $21,008
VBMFX (Vanguard Total Bond): $23,365
VTSAX (Vanguard Total Stock Market Admiral): $54,666
10 year performance of $10,000, May 2011-May 2021:
I Bond: $12,020 (with a 0% fixed rate)
EE Bond: $11,144
VBMFX: $13,647
VTSAX: $37,605
This of course excludes tax drag with the mutual funds, as well as the state taxation on mutual funds for those who live in states that tax investment income.
Back in 2011 you could readily find 3% 10 year CDs, which today with compounding would be $13,439. Those haven't existed for a while now, although in 2019 there were a few banks offering 3%+ on 10 year CDs which, in hindsight, would probably beat I Bonds when held to maturity.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
May all your index funds gain +0.5% today.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Past performance is not indicative of future returns.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
10K I bond - issued May 2011 terminal value as of May 2021 - $12,020ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
There is a 10k/yr limit for I-Bonds, which may be a negative attribute for some high savers.
10K in BND - issued May 2011 terminal value as of May 2021 - $13,781
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
You should consider I bonds to be insurance, by your line of reasoning, since your house did not burn down, one should think of it as a reason not to buy home insurance. The primary reason for home insurance is usually fire, but there is also wind damage, theft, liability insurance that is also bundled in the policy. An I bond is both inflation protection, deflation protection (value can not decline) and a store of value. BND value fluctuates with market rates, it offers nominal rates of return (deflation protection).ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
You are preaching to the choir. I was trying to make csm think about possible scenarios where I-Bonds might not outperform BND (or vice versa). Maybe possible poorer performance would matter to csm.Grt2bOutdoors wrote: ↑Sat May 15, 2021 9:33 pmYou should consider I bonds to be insurance, by your line of reasoning, since your house did not burn down, one should think of it as a reason not to buy home insurance. The primary reason for home insurance is usually fire, but there is also wind damage, theft, liability insurance that is also bundled in the policy. An I bond is both inflation protection, deflation protection (value can not decline) and a store of value. BND value fluctuates with market rates, it offers nominal rates of return (deflation protection).ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Of course. But past performance gives someone a range of possibilities going forward. Maybe evidence of poorer past performance matters to someone considering I-Bonds.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
What is the premise you are disagreeing with?AnEngineer wrote: ↑Sat May 15, 2021 7:10 pmI know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.
May all your index funds gain +0.5% today.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
That looking at past performance of the two will tell you something useful for deciding for the future.ApeAttack wrote: ↑Sun May 16, 2021 3:54 amWhat is the premise you are disagreeing with?AnEngineer wrote: ↑Sat May 15, 2021 7:10 pmI know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Does this factor in tax advantages of I bonds? I assume it ignores state tax immunity, but I doubt it includes tax drag of BND.Grt2bOutdoors wrote: ↑Sat May 15, 2021 9:29 pm10K I bond - issued May 2011 terminal value as of May 2021 - $12,020ApeAttack wrote: ↑Sat May 15, 2021 12:32 amIf you bought 10k in I-Bonds and 10k in BND 10 years ago, which would be ahead? (I'm too lazy to check right now)csm14 wrote: ↑Sat May 15, 2021 12:14 amBased on this-any reason that someone like me shouldn't use I-Bonds each year as opposed to BND (Bond ETF) in my portfolio? Other than the federal tax implications since I have BND in my ROTH IRA.Clever_Username wrote: ↑Wed May 05, 2021 11:43 pm I wish I had bought Series I Bonds before I turned 30. As life turned out, I didn't, but I'm getting close to six figures in them.
I don't really think of a "bond allocation" as part of my portfolio anyway. I have a stocks allocation and a conservative assets allocation; the latter includes Series I Bonds (and actual bond funds, too). I also don't think of having an emergency fund, although in your 20s, you should. In my case, I have an emergency plan: if I need cash for the usual reasons of an emergency fund, where do I go? My Series I bonds are an early step in that (but not first -- bond funds in taxable are before them). They're basically inflation indexed cash for me.
Seems like I-Bonds serve the same purpose with more benefits.
There is a 10k/yr limit for I-Bonds, which may be a negative attribute for some high savers.
10K in BND - issued May 2011 terminal value as of May 2021 - $13,781
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Thanks for all the information.
I agree with most of what is being said-for me, this is cash I foresee potentially needing in a couple years, but not in the next year. So I feel comfortable with I-Bonds.
I don't max 401(K) because I need some liquidity in the short term.
I agree with most of what is being said-for me, this is cash I foresee potentially needing in a couple years, but not in the next year. So I feel comfortable with I-Bonds.
I don't max 401(K) because I need some liquidity in the short term.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I would argue that past performance is useful or tools like Portfolio Visualizer wouldn't be so popular here. PV won't tell you what will happen with 100% certainty, but helps determine the range of possibilities of what could happen. Most of us are betting stocks will do better than bonds over the next 10 years because of past performance, but many hedge that bet with bonds to smooth the ride because of past performance. For my stocks, I'm 75/25 US/ex-US because past performance indicates US tends to do better, but I hedge with ex-US because sometimes it does better. If ex-US stocks always returned less than US stocks, I likely would be 100/0 (as would most on this forum).AnEngineer wrote: ↑Sun May 16, 2021 7:01 amThat looking at past performance of the two will tell you something useful for deciding for the future.ApeAttack wrote: ↑Sun May 16, 2021 3:54 amWhat is the premise you are disagreeing with?AnEngineer wrote: ↑Sat May 15, 2021 7:10 pmI know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pm
What use would that information be? Interest rates are different now.
Looking at past performance of I-Bonds vs BND will let someone know what could happen. For example, if BND has always out-performed I-Bonds by a lot, I-Bonds might be far less attractive than BND to an investor. If the past perforance oscillates between I-Bonds and BND returning greater yields, then maybe the inflation hedge property of I-Bonds make them the obvious choice for an investor. Or maybe the investor would want to split between I-Bonds and BND.
It's true that the interest rate situation is very different in 2000 vs today, so looking at the past may have limited utility. But it isn't useless.
May all your index funds gain +0.5% today.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
To be more specific:ApeAttack wrote: ↑Sun May 16, 2021 4:05 pmI would argue that past performance is useful or tools like Portfolio Visualizer wouldn't be so popular here. PV won't tell you what will happen with 100% certainty, but helps determine the range of possibilities of what could happen. Most of us are betting stocks will do better than bonds over the next 10 years because of past performance, but many hedge that bet with bonds to smooth the ride because of past performance. For my stocks, I'm 75/25 US/ex-US because past performance indicates US tends to do better, but I hedge with ex-US because sometimes it does better. If ex-US stocks always returned less than US stocks, I likely would be 100/0 (as would most on this forum).AnEngineer wrote: ↑Sun May 16, 2021 7:01 amThat looking at past performance of the two will tell you something useful for deciding for the future.ApeAttack wrote: ↑Sun May 16, 2021 3:54 amWhat is the premise you are disagreeing with?AnEngineer wrote: ↑Sat May 15, 2021 7:10 pmI know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.
Looking at past performance of I-Bonds vs BND will let someone know what could happen. For example, if BND has always out-performed I-Bonds by a lot, I-Bonds might be far less attractive than BND to an investor. If the past perforance oscillates between I-Bonds and BND returning greater yields, then maybe the inflation hedge property of I-Bonds make them the obvious choice for an investor. Or maybe the investor would want to split between I-Bonds and BND.
It's true that the interest rate situation is very different in 2000 vs today, so looking at the past may have limited utility. But it isn't useless.
I bonds return is determined by the fixed rate at time of purchase and inflation. Right now the fixed rate has bottomed out at 0, as it's not allowed to go negative.
Bond returns, when held to maturity, are determined by the interest rate when you purchase them. A bond fund is more complicated and is affected by changing interest rates. The drop in interest rates in the recent past has increased the return of bond funds. However, regardless of whether you believe there's no more down to go for interest rates, there's certainly less down to go, meaning that as a mechanism of return, this is less likely to be a factor moving forward.
This means that BND compared to I bonds will look much more favorable over the past ten years then they will over the next ten years.
If you completely ignored what will determine BND and I bond returns, sure, looking at past returns will tell you something. But given what we know about them, looking at past returns tells you nothing and almost certainly be the opposite of useless by pointing towards bad actions now.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I do not agree, I think this is a typical beginner fallacy. Please provide some concrete evidence for your reasoning.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I actually completely agree with AnEngineer above.ivgrivchuck wrote: ↑Sun May 16, 2021 5:03 pmI do not agree, I think this is a typical beginner fallacy. Please provide some concrete evidence for your reasoning.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Are you saying we should not use past performance in the specific case of determining whether to purchase I-Bonds vs BND in 2021, or we should never use past performance when making any investment decisions?ivgrivchuck wrote: ↑Sun May 16, 2021 5:03 pmI do not agree, I think this is a typical beginner fallacy. Please provide some concrete evidence for your reasoning.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I think we are talking past each other.AnEngineer wrote: ↑Sun May 16, 2021 4:21 pmTo be more specific:ApeAttack wrote: ↑Sun May 16, 2021 4:05 pmI would argue that past performance is useful or tools like Portfolio Visualizer wouldn't be so popular here. PV won't tell you what will happen with 100% certainty, but helps determine the range of possibilities of what could happen. Most of us are betting stocks will do better than bonds over the next 10 years because of past performance, but many hedge that bet with bonds to smooth the ride because of past performance. For my stocks, I'm 75/25 US/ex-US because past performance indicates US tends to do better, but I hedge with ex-US because sometimes it does better. If ex-US stocks always returned less than US stocks, I likely would be 100/0 (as would most on this forum).AnEngineer wrote: ↑Sun May 16, 2021 7:01 amThat looking at past performance of the two will tell you something useful for deciding for the future.ApeAttack wrote: ↑Sun May 16, 2021 3:54 amWhat is the premise you are disagreeing with?AnEngineer wrote: ↑Sat May 15, 2021 7:10 pm
I know, but I'm disagreeing with the premise, given what we know about interest rates now vs. 10 years ago.
Looking at past performance of I-Bonds vs BND will let someone know what could happen. For example, if BND has always out-performed I-Bonds by a lot, I-Bonds might be far less attractive than BND to an investor. If the past perforance oscillates between I-Bonds and BND returning greater yields, then maybe the inflation hedge property of I-Bonds make them the obvious choice for an investor. Or maybe the investor would want to split between I-Bonds and BND.
It's true that the interest rate situation is very different in 2000 vs today, so looking at the past may have limited utility. But it isn't useless.
I bonds return is determined by the fixed rate at time of purchase and inflation. Right now the fixed rate has bottomed out at 0, as it's not allowed to go negative.
Bond returns, when held to maturity, are determined by the interest rate when you purchase them. A bond fund is more complicated and is affected by changing interest rates. The drop in interest rates in the recent past has increased the return of bond funds. However, regardless of whether you believe there's no more down to go for interest rates, there's certainly less down to go, meaning that as a mechanism of return, this is less likely to be a factor moving forward.
This means that BND compared to I bonds will look much more favorable over the past ten years then they will over the next ten years.
If you completely ignored what will determine BND and I bond returns, sure, looking at past returns will tell you something. But given what we know about them, looking at past returns tells you nothing and almost certainly be the opposite of useless by pointing towards bad actions now.
If you hold I-Bonds and BND for 20-30 years, who knows what will happen to interest rates and inflation in the future. We've seen situations where BND outperforms I-Bonds, and vice versa.
You mentioned:
The word "favorable" suggests there is a range of possibilities of what may happen in the future. I'm not disagreeing with your analysis (which I actually agree with) but there is uncertainty which may make an investor want to hedge their bets.This means that BND compared to I bonds will look much more favorable over the past ten years then they will over the next ten years.
Please note when I say "past performance" I'm not saying one should *chase* superior past performance. There are plenty of threads and studies demonstrating the foolishness of that line of thinking. I'm merely saying that past performance gives us insight into what is possible. As an extreme example, if stocks outperformed bonds every year since 1900, almost everyone here would be 100% stocks. Since past performance of stocks and bonds show stocks sometime underperform bonds (especially during crashes), most people hedge their bets with bonds.
May all your index funds gain +0.5% today.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Let's put it this way: It is good to learn from the past. But using past returns without paying attention to the underlying fundamentals and potential changes in them is just going to land you in deep trouble.
This applies to all assets.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I don't understand how how you jumped to the idea that I don't think I-Bonds have value as a form of insurance. Actually, I like I-Bonds for their inflation-hedging properties in particular.Grt2bOutdoors wrote: ↑Sat May 15, 2021 9:33 pmYou should consider I bonds to be insurance, by your line of reasoning, since your house did not burn down, one should think of it as a reason not to buy home insurance. The primary reason for home insurance is usually fire, but there is also wind damage, theft, liability insurance that is also bundled in the policy. An I bond is both inflation protection, deflation protection (value can not decline) and a store of value. BND value fluctuates with market rates, it offers nominal rates of return (deflation protection).ApeAttack wrote: ↑Sat May 15, 2021 6:54 pmI should have been clearer. I was trying to have csm think about the past performance of the two options. If I-Bonds didn't perform as well as BND consistently in the past, perhaps that would be a reason to not get I-Bonds.AnEngineer wrote: ↑Sat May 15, 2021 6:26 pmWhat use would that information be? Interest rates are different now.
However, some people may not think inflation is a serious risk and focus more on total return. Looking at the last 20 years of performance data might be useful to them.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
That's a much more nuanced statement, and I agree with it. Your previous statement was that you disagreed with my claim that "past performance gives someone a range of possibilities going forward." If that were true, tools like PV would be completely useless.ivgrivchuck wrote: ↑Sun May 16, 2021 5:42 pmLet's put it this way: It is good to learn from the past. But using past returns without paying attention to the underlying fundamentals and potential changes in them is just going to land you in deep trouble.
This applies to all assets.
As I mentioned in another post, I'm not saying that one should chase past performance. That is foolish. Rather, I am saying using past performance data is a critical tool to determine what may happen in the future -- hedge your bets accordingly. The entire point of using a low-cost 3-fund portfolio is that historically it has done very well compared to actively managed funds. How else would we know that without looking at past performance data?
May all your index funds gain +0.5% today.
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Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
No, we don't agree. 3-fund portfolio should be chosen because fundamental analysis shows that it is a good choice. This fundamental analysis can be backed up by historical data, not the other way around.ApeAttack wrote: ↑Sun May 16, 2021 5:14 pm
As I mentioned in another post, I'm not saying that one should chase past performance. That is foolish. Rather, I am saying using past performance data is a critical tool to determine what may happen in the future -- hedge your bets accordingly. The entire point of using a low-cost 3-fund portfolio is that historically it has done very well compared to actively managed funds. How else would we know that without looking at past performance data?
Similarly one should construct their portfolio based on careful analysis of the underlying assets. Historical portfolio tools can be then used to sanity check the result. Doing it the other way around is again just calling for trouble.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
In the context of the BND vs Series I savings bonds , the stronger earlier position was more correct: past performance tells you nothing useful. The best estimate of future returns are current yields, not past returns.ApeAttack wrote: ↑Sun May 16, 2021 5:53 pm
That's a much more nuanced statement, and I agree with it. Your previous statement was that you disagreed with my claim that "past performance gives someone a range of possibilities going forward." If that were true, tools like PV would be completely useless.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
I had a long response written up but decided to just end the conversation here. I think we are talking about two different things. I'm discussing the use of historical data as a window into what's possible and to plan accordingly. I can't imagine a world where people didn't use historical data to determine how to hedge bets.ivgrivchuck wrote: ↑Sun May 16, 2021 6:14 pmNo, we don't agree. 3-fund portfolio should be chosen because fundamental analysis shows that it is a good choice. This fundamental analysis can be backed up by historical data, not the other way around.ApeAttack wrote: ↑Sun May 16, 2021 5:14 pm
As I mentioned in another post, I'm not saying that one should chase past performance. That is foolish. Rather, I am saying using past performance data is a critical tool to determine what may happen in the future -- hedge your bets accordingly. The entire point of using a low-cost 3-fund portfolio is that historically it has done very well compared to actively managed funds. How else would we know that without looking at past performance data?
Similarly one should construct their portfolio based on careful analysis of the underlying assets. Historical portfolio tools can be then used to sanity check the result. Doing it the other way around is again just calling for trouble.
Again, this isn't about chasing performance, but rather to better understand what could happen (who knows what will actually happen).
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
Everyone keeps missing my point. Maybe I've done a very poor job of explaining myself. I'll try one more time.vineviz wrote: ↑Sun May 16, 2021 6:18 pmIn the context of the BND vs Series I savings bonds , the stronger earlier position was more correct: past performance tells you nothing useful. The best estimate of future returns are current yields, not past returns.ApeAttack wrote: ↑Sun May 16, 2021 5:53 pm
That's a much more nuanced statement, and I agree with it. Your previous statement was that you disagreed with my claim that "past performance gives someone a range of possibilities going forward." If that were true, tools like PV would be completely useless.
Of course the historical data doesn't tell us what will happen. It doesn't tell us which investment will earn more going forward. But it does show us what has already happened and what could happen again over a typical investor's lifetime. So we all hedge our bets in various ways based on that information.
Why does almost no one think the US market will drop 99% in the next 20 years? Because it hasn't happened before. If a 99% crash happened in 1952 and 1985 (random years) people's expectations would certainly change. We rely on the historical record to determine a range of possible outcomes.
Which will make more money over the next 20 years, 10k of BND or 10k of I-Bonds? I dunno, but the historical record shows either may win out based on a variety of factors. At the moment the conditions might be better for I-Bonds, but 20 years is a long time and conditions are always changing. So an investor who looks at this information may decide to get a bit of both as a hedge.
May all your index funds gain +0.5% today.
Re: I-Bonds and EE Bonds in Portfolio [in your 20's]
If figuring out that "conditions are always changing" requires a look back at the past then so be it: look back at the past and draw that conclusion.ApeAttack wrote: ↑Sun May 16, 2021 8:49 pm Which will make more money over the next 20 years, 10k of BND or 10k of I-Bonds? I dunno, but the historical record shows either may win out based on a variety of factors. At the moment the conditions might be better for I-Bonds, but 20 years is a long time and conditions are always changing. So an investor who looks at this information may decide to get a bit of both as a hedge.
In this specific context, however it's not just that " at the moment the conditions might be better for I-Bonds". We know something far more powerful than that: the current real yield on Series I savings bonds is over 100 bps higher than the real yield on BND. And those current yields are a rock solid estimate of total returns over the next 6-7 years.
Whether BND had higher or lower returns in the past tells us nothing useful about which has higher expected returns over the next 7 years.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch