Any Reason to NOT max out I Bonds and EE Bonds

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Dink2018
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Any Reason to NOT max out I Bonds and EE Bonds

Post by Dink2018 »

My Vanguard PAS rep never brought it up. But looking at the figures I don't see any reason not to max these out since the space is limited.

Are these ONLY available at TreasuryDirect? I wish I could buy them via my normal accounts at either Vanguard or Fidelity.

Notes: My portfolio is basically the global market modeled after life strategy funds / vg target date funds.

I don't see any other bonds with better returns so assuming I'm adding might as well add these?

I get that there are limits so it won't move needle much but it all winds up counting in the long run when you do the right things based on math and strategy.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by beyou »

I bonds yes.
E bonds only if you will hold 20 years.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by ivgrivchuck »

They don't mention it to you, because they can't offer it. Treasury Direct is the only way.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by BogleMelon »

1 reason: simplicity. I wish I could buy i bonds in my brokerage account
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

I'm a big fan on both (and maxed out both this year and last), but there are a few considerations...

Edited to include great points I didn't previously cover from bhough (at their full post later in the thread):
bhough wrote: Tue Apr 20, 2021 11:49 am 1. If you have credit card debt, you should pay this off first before you buy I bonds or EE bonds as the interest you are paying on these is higher than what you will get in return.

3. If you are maxing out your HSA, but then using those funds for medical expenses, you might consider putting some money aside to pay for your medical expenses before you start allocating to savings bonds.

6. If you have a car payment that is charging you interest, it may not make sense to keep paying that and buy these.
Only after tax-advantaged options. It likely only makes since if you expect to max out other tax advantaged accounts (aka 401k, Roth, etc.), as the benefits of those are likely better. (And the "extended" tax-deferred space of I/EE Bonds is that much nicer.)

Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.

Not for short term needs. You need to be comfortable with the minimum 1 year holding period. I'd also include the penalty for withdrawals within 5 years, but current rates are so low that even with the penalty you'll come out ahead right now...

Specific to EE Bonds Have a plan to use EE Bonds in exactly 20 years? EE Bonds are either a horrible or amazing choice depending on if you'll use them in 20 years (there "sweet spot" when they double). If you can't commit to 20 years - don't do EE Bonds. If you aren't sure what you'll use them on in 20 years, or might still be working, don't do EE Bonds. But if you can see a use for them in 20 years, they are a great option!

For myself, I'm using I/EE Bonds to help build an "income floor" (quasi-LMP) to cover early retirement years before delayed social security and pensions. We "discovered" EE Bonds too late, so they'll likely only cover about 5 of those years (can't go back and buy the missed years...). Overbuying I Bonds (via two trusts + $5k tax refund on top of personal accounts) to attempt to "back fill" for the missed EE Bonds (without the guaranteed 20 year doubling timeline, takes more I Bonds for a similar income stream). Goal is to have roughly $35-40k/year between I/EE Bonds. We might not spend them this way (especially if markets are doing well), but this provides a buffer to address SoRR and decrease pre- SS/pension withdrawal (and somewhat normalize with post- withdrawal).
Last edited by SnowBog on Tue Apr 20, 2021 3:06 pm, edited 1 time in total.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Angst »

SnowBog wrote: Tue Apr 20, 2021 12:17 am Specific to EE Bonds Have a plan to use EE Bonds in exactly 20 years? EE Bonds are either a horrible or amazing choice depending on if you'll use them in 20 years (there "sweet spot" when they double). If you can't commit to 20 years - don't do EE Bonds. If you aren't sure what you'll use them on in 20 years, or might still be working, don't do EE Bonds. But if you can see a use for them in 20 years, they are a great option!
Yes, committing to the 20 yr holding period is important!

But holding EE bonds also obligates one to monitor rates during the years of holding them, and one might justifiably choose to abandon their EE Bond commitment at some point in the future. I've bought them annually for a decade now and although it's turned out quite well, there were periods of months when I considered bailing on a prior purchase.

Note the chart below. Every year after purchasing an EE Bond, it's yield to maturity (YTM) will rise and this is what one must compare to alternatives in the Treasury bond marketplace to help decide whether to continue holding onto the EE Bond purchase. The best price comparison would be between the EE Bond's YTM in a given year X (years left) vs. the current yield on a zero-coupon Treasury STRIP for X years.
Angst wrote: Fri Mar 31, 2017 11:36 am

Code: Select all

Year  YTM   Yrs left
1     3.53%    20
2     3.72%    19
3     3.93%    18
4     4.16%    17
5     4.43%    16
6     4.73%    15
7     5.08%    14
8     5.48%    13
9     5.95%    12
10    6.50%    11
11    7.18%    10
12    8.01%     9
13    9.05%     8
14   10.41%     7
15   12.25%     6
16   14.87%     5
17   18.92%     4
18   25.99%     3
19   42.42%     2
20  100.00%     1
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by noriskfinance »

Couple of questions on EE bonds:

1. If I max out 10k for I bonds, I can still buy 10K of EE bonds or is it either or?
2. Like I bonds, EE bonds do not carry state or federal taxes?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by nolesrule »

noriskfinance wrote: Tue Apr 20, 2021 7:55 am Couple of questions on EE bonds:

1. If I max out 10k for I bonds, I can still buy 10K of EE bonds or is it either or?
2. Like I bonds, EE bonds do not carry state or federal taxes?
1. Yes.
2. No state taxes. Federal taxes are deferred until you redeem. Although you do have the option of paying taxes annually on the interest.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Johm221122 »

noriskfinance wrote: Tue Apr 20, 2021 7:55 am Couple of questions on EE bonds:

1. If I max out 10k for I bonds, I can still buy 10K of EE bonds or is it either or?
2. Like I bonds, EE bonds do not carry state or federal taxes?
1. Yes
2. Both have federal, neither have State
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

I like I Bonds (I use them as the 2nd tier of my EF but count them as part of my fixed income allocation).

I don't like the 20 year holding period needed for EE Bonds to double in value, effectively making them a 20 year CD with a steep early withdrawal penalty. If I have to hold something for at least 20 years, I would rather buy VTSAX, which I do in my taxable account.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by JBTX »

I'm currently doing both. Ibonds for many years. Just started EE.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by vineviz »

SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Yarlonkol12 »

Is there a risk that the 20 year doubling period of EE bonds could be changed in the future? If so, could this be retroactive? I don’t mean to speculate on future rules, I am just trying to understand if this is an added risk that Ibonds don’t have?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Clark & Addison »

vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Could you give some explanation to this?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by tipswatcher »

tiburblium wrote: Tue Apr 20, 2021 8:48 am Is there a risk that the 20 year doubling period of EE bonds could be changed in the future? If so, could this be retroactive? I don’t mean to speculate on future rules, I am just trying to understand if this is an added risk that Ibonds don’t have?
This is highly unlikely, at least for any EE Bonds already issued with those terms. The terms for EE Bonds have changed many times over the years, but the terms remained in effect for all EE Bonds already issued. But for EE Bonds issued in the future, yes, the terms could definitely change. In fact, they could change as soon as May 3 (but I doubt that will happen).

TreasuryDirect has a page with links to all the past (and current) terms, which remain in effect today for EE Bonds issued in those years.

https://www.treasurydirect.gov/indiv/re ... dterms.htm
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by alluringreality »

tiburblium wrote: Tue Apr 20, 2021 8:48 am Is there a risk that the 20 year doubling period of EE bonds could be changed in the future? If so, could this be retroactive? I don’t mean to speculate on future rules, I am just trying to understand if this is an added risk that Ibonds don’t have?
As noted by tipswatcher, future terms could change, since they have in the past. I personally expect the United States to follow through on their established obligations, so in that sense I'm not aware of a reason to reasonably expect terms to be altered retroactively. If someone instead expects the United States to default on their loans, then that would probably apply equally to all savings bonds.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

tipswatcher wrote: Tue Apr 20, 2021 9:01 am
tiburblium wrote: Tue Apr 20, 2021 8:48 am Is there a risk that the 20 year doubling period of EE bonds could be changed in the future? If so, could this be retroactive? I don’t mean to speculate on future rules, I am just trying to understand if this is an added risk that Ibonds don’t have?
This is highly unlikely, at least for any EE Bonds already issued with those terms. The terms for EE Bonds have changed many times over the years, but the terms remained in effect for all EE Bonds already issued. But for EE Bonds issued in the future, yes, the terms could definitely change. In fact, they could change as soon as May 3 (but I doubt that will happen).

TreasuryDirect has a page with links to all the past (and current) terms, which remain in effect today for EE Bonds issued in those years.

https://www.treasurydirect.gov/indiv/re ... dterms.htm
Do you think that maybe in the future if interest rates rise enough it is realistic to think that the EE Bonds' doubling period (new issue) will be less than 20 years? I know the double period used to be less than 20 years.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by vineviz »

Clark & Addison wrote: Tue Apr 20, 2021 8:49 am
vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Could you give some explanation to this?
The primary tradeoff between bonds and stocks is one of certainty versus potential.

When I buy a bond you know exactly what stream of future income I will receive from that bond. If I purchase $100,000 worth of a February 2031 Treasury note, I know I'll receive $1,500 in income per year AND $100,000 when the bond matures on 2/15/2031. This is what bonds are called "fixed income" securities.

Since the purpose of saving for retirement is to create a stream of income after we start working, portfolio volatility isn't really the risk that matters. It's volatilitiy and/or level of income. The volatility and level of income provided by a bond (whether savings bond or marketable bond) isn't impacted by whether stocks go up or down. Because bond income is not volatile and has a fixed level.

Bonds have a secondary effect, which that their PRICES are typically less volatile than stocks and/or are not highly correlated with stocks. Owning bonds in order to reduce portfolio volatility and/or increase diversification is a legitimate reason, and rebalancing can be helpful in achieving that goal. But the goal itself is not to rebalance.

A rebalanced portfolio of stocks and bonds virtually never has a higher expected return than a portfolio of just stocks. So it must follow that only reason people should hold bonds is reduce risk. Rebalancing is a tool, in other words, not a goal.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by KlingKlang »

ivgrivchuck wrote: Mon Apr 19, 2021 11:44 pm They don't mention it to you, because they can't offer it. Treasury Direct is the only way.
Just wanted to add that you get also get up to an additional $5000/year of paper Series I US Savings Bonds from your federal tax refund, subject to the amount of your refund of course.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by nisiprius »

In my personal opinion, there are enough practical, nuisance, and concern about the nuts-and-bolts details of managing savings bonds to weigh into the decision.

This is very personal, but: I am seriously disappointed by the near-discontinuation of paper bonds because I have reservations about electronic bonds in Treasury Direct. The reservations mostly concern the practical difficulties that my family might encounter in locating and redeeming them if the need arises.

I like and have kept our paper I bonds because they offer true co-ownership. Either co-owner can redeem the bond directly, without the permission or even the knowledge of the other--which is a disadvantage if you are a control freak, but the same characteristic makes them easy to redeem after the death of the co-owner. No need to present a death certificate, no need to transfer ownership, no probate, no nothing.

At the same time, though, I am concerned about paper I-bonds in an electronic age, and at a time when only a limited number of banks are willing to redeem them, and the procedure for redeeming them by mail with the Treasury seems involved.

I dislike electronic bonds to the point of throwing in the towel and redeeming them and empty our Treasury Direct accounts. The reasons are that it is one or two more electronic accounts that other members of the family must find and deal with; there is no true co-ownership, the bond is in one person's account or the other, and according to the website and an email exchange with Treasury Direct, a survivor must deal with ownership transfer; and the website has a disconcerting habit of forgetting my account and insisting on my getting a "one-time passcode" to re-establish access.

The future of savings bonds isn't as clear as I'd like it to be. Back in either 2008 or 2009, I forget which, a sudden and drastic cut in annual purchase limit from $30,000 to (then) $5,000/year was made with 31 days' notice and no real explanation. I wish there were a clearer statement of the Treasury's future intentions for the program. None of this should affect existing purchases or holdings, but it gives me some faint unease about the idea of continuing them and expecting them to remain available for another thirty years.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by dukeblue219 »

tipswatcher wrote: Tue Apr 20, 2021 9:01 am
tiburblium wrote: Tue Apr 20, 2021 8:48 am Is there a risk that the 20 year doubling period of EE bonds could be changed in the future? If so, could this be retroactive? I don’t mean to speculate on future rules, I am just trying to understand if this is an added risk that Ibonds don’t have?
This is highly unlikely, at least for any EE Bonds already issued with those terms. The terms for EE Bonds have changed many times over the years, but the terms remained in effect for all EE Bonds already issued. But for EE Bonds issued in the future, yes, the terms could definitely change. In fact, they could change as soon as May 3 (but I doubt that will happen).

TreasuryDirect has a page with links to all the past (and current) terms, which remain in effect today for EE Bonds issued in those years.

https://www.treasurydirect.gov/indiv/re ... dterms.htm
Also worth adding, for anyone concerned about big government debt forcing them to do unusual things, that EE bonds are a tiny sliver of the government debt. The total unredeemed EE bonds as of 2019 was $77 B. The interest on these is of no concern. If anything I'd be more worried about the Treasury discontinuing savings bonds altogether.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by HomerJ »

I'm maxing out ibonds every year for myself and my wife ($20,000 a year).

Been doing it for 5 years...

I'd like to get to $200,000 in this space at least.

They don't make much, but I like the idea of having $200,000 in inflation-protected securities. Double-digit inflation could hurt the fixed income side of my portfolio a lot, so having a cash floor of $200,000 that is mostly immune to inflation helps me sleep at night.

EE Bonds only get you the 3.6% if you hold them for 20 years. If inflation is higher, you can still lose money. If rates go up in 5 years, you've locked in that money for 20 years (Well I guess you could sell them, but they are paying like 0.1% a year right now)

I haven't bothered with EE bonds.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by secondopinion »

vineviz wrote: Tue Apr 20, 2021 10:15 am
Clark & Addison wrote: Tue Apr 20, 2021 8:49 am
vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Could you give some explanation to this?
The primary tradeoff between bonds and stocks is one of certainty versus potential.

When I buy a bond you know exactly what stream of future income I will receive from that bond. If I purchase $100,000 worth of a February 2031 Treasury note, I know I'll receive $1,500 in income per year AND $100,000 when the bond matures on 2/15/2031. This is what bonds are called "fixed income" securities.

Since the purpose of saving for retirement is to create a stream of income after we start working, portfolio volatility isn't really the risk that matters. It's volatilitiy and/or level of income. The volatility and level of income provided by a bond (whether savings bond or marketable bond) isn't impacted by whether stocks go up or down. Because bond income is not volatile and has a fixed level.

Bonds have a secondary effect, which that their PRICES are typically less volatile than stocks and/or are not highly correlated with stocks. Owning bonds in order to reduce portfolio volatility and/or increase diversification is a legitimate reason, and rebalancing can be helpful in achieving that goal. But the goal itself is not to rebalance.

A rebalanced portfolio of stocks and bonds virtually never has a higher expected return than a portfolio of just stocks. So it must follow that only reason people should hold bonds is reduce risk. Rebalancing is a tool, in other words, not a goal.
Agreed; bond are for risk management. Short-term bonds (and even cash-like investment) carry very little interest rate risk but taking reinvestment risk on their principal. Long-term are the reverse for their principal. But carry little risk otherwise.

To further talk about rebalancing, some of your bond allocation will very likely never be part of the rebalancing due to the lack of complete churn (I doubt stocks will tank down close to nothing). I/EE bonds are likely to be in the part of the bonds that is never touched. Same argument applies to CDs (except these are carry more reinvestment risk for less interest rate risk).
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by alluringreality »

HomerJ wrote: Tue Apr 20, 2021 10:51 am If rates go up in 5 years, you've locked in that money for 20 years.
Rates going up in 5 years is not really a concern for me on EE bonds. If rates go up on long-term nominals, that could cause a near-term price decline. With EE bonds I could just redeem on a near-term increase and earn the 0.1% rate, at least it's no worse than holding T-bills. Of course I'm not buying with the intent of collecting a 0.1% rate, but if market rates were high enough I suppose I'd consider it with only $10k chunks at stake.

Realistically I figure for my timeline EE bonds could be a better purchase than I bonds, since I really don't expect inflation to exceed an average of 3.5% over the next 20 years. Of course I could be wrong, and in that case I bonds certainly have better liquidity when redeeming prior to 20 years. Basically looking at the rates from the 1950s and 1960s, I can't really say for sure that rates higher than doubling in 20 years are a given, so putting my second-level near-term cash in there for a chance to double probably isn't the worst option in today's world. The money I don't want to put into stocks tends to have a dual near-term or long-term purpose, depending how things work out, and I'm not convinced that current near-term rates are likely to double assets in my lifetime.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Clark & Addison »

vineviz wrote: Tue Apr 20, 2021 10:15 am
Clark & Addison wrote: Tue Apr 20, 2021 8:49 am
vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Could you give some explanation to this?
The primary tradeoff between bonds and stocks is one of certainty versus potential.

When I buy a bond you know exactly what stream of future income I will receive from that bond. If I purchase $100,000 worth of a February 2031 Treasury note, I know I'll receive $1,500 in income per year AND $100,000 when the bond matures on 2/15/2031. This is what bonds are called "fixed income" securities.

Since the purpose of saving for retirement is to create a stream of income after we start working, portfolio volatility isn't really the risk that matters. It's volatilitiy and/or level of income. The volatility and level of income provided by a bond (whether savings bond or marketable bond) isn't impacted by whether stocks go up or down. Because bond income is not volatile and has a fixed level.

Bonds have a secondary effect, which that their PRICES are typically less volatile than stocks and/or are not highly correlated with stocks. Owning bonds in order to reduce portfolio volatility and/or increase diversification is a legitimate reason, and rebalancing can be helpful in achieving that goal. But the goal itself is not to rebalance.

A rebalanced portfolio of stocks and bonds virtually never has a higher expected return than a portfolio of just stocks. So it must follow that only reason people should hold bonds is reduce risk. Rebalancing is a tool, in other words, not a goal.
That makes sense. Thank you.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by bhough »

OP,

To directly answer your question (is there any reason not to max out I and EE bonds each year), here are a few, but they probably don't apply to the prudent Bogleheads community:

1. If you have credit card debt, you should pay this off first before you buy I bonds or EE bonds as the interest you are paying on these is higher than what you will get in return.

2. If you haven't maxed out your tax deferred space yet (401K, IRA if you quality, HSA), you should probably max these out first, especially if you have a match from your employer.

3. If you are maxing out your HSA, but then using those funds for medical expenses, you might consider putting some money aside to pay for your medical expenses before you start allocating to savings bonds.

4. If you have no money in an emergency fund, you might consider putting a few months in a boring savings account (yield 0.1%) for unexpected expenses before funding these). You can't cash either bond for at least a year, so this money isn't available to you immediately as an emergency fund.

5. There is no benefit to EE bonds unless you hold them the full 20 years. If you are already considering buying a long bond, EE bonds are much better than long term nominal treasuries or TIPS at current rates. However, please remember that TIPS have their principal adjusted and if rates rise sometime over the next 20 years, your outcome with TIPS may be better than your outcome with EE Bonds despite interest income tax and phantom tax on TIPS. (imagine if inflation hits 5% one year after purchase and stays there for 19 years,...)

6. If you have a car payment that is charging you interest, it may not make sense to keep paying that and buy these.

Personally, I am trying (but may not be able to) buy the max of both this year for my wife and I as we have maxed out our deferred space and I'm a little bearish on stocks and am looking to beef up the bond side of things and buying TIPS at a premium is hard for me to stomach.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by nisiprius »

Dink2018 wrote: Mon Apr 19, 2021 11:21 pmMy Vanguard PAS rep never brought it up.
Of course not. Nobody connected with the financial industry is likely to mention them because there is no way an investment firm can make a dime off them. What you will find is that, uniformly, on the merits and the numbers, anyone who is independent of the financial industry finds them well worth considering. What makes them completely unique AFAIK among investments is that they have neither interest rate risk, inflation risk, or credit quality risk.

(Unfortunately that comes with some baggage in the form of inconvenience, now that you can no longer count on banks selling or redeeming them).
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

vineviz wrote: Tue Apr 20, 2021 10:15 am
Clark & Addison wrote: Tue Apr 20, 2021 8:49 am
vineviz wrote: Tue Apr 20, 2021 8:39 am
SnowBog wrote: Tue Apr 20, 2021 12:17 am Not your first or only bonds. You should already own enough bonds for rebalancing your AA, as I/EE Bonds are not suitable for this purpose.
I just want to observe that it is true that savings bond are not generally suitable for rebalancing this is not a disadvantage: investors should not own bonds so that they can rebalance.
Could you give some explanation to this?
The primary tradeoff between bonds and stocks is one of certainty versus potential.

When I buy a bond you know exactly what stream of future income I will receive from that bond. If I purchase $100,000 worth of a February 2031 Treasury note, I know I'll receive $1,500 in income per year AND $100,000 when the bond matures on 2/15/2031. This is what bonds are called "fixed income" securities.

Since the purpose of saving for retirement is to create a stream of income after we start working, portfolio volatility isn't really the risk that matters. It's volatilitiy and/or level of income. The volatility and level of income provided by a bond (whether savings bond or marketable bond) isn't impacted by whether stocks go up or down. Because bond income is not volatile and has a fixed level.

Bonds have a secondary effect, which that their PRICES are typically less volatile than stocks and/or are not highly correlated with stocks. Owning bonds in order to reduce portfolio volatility and/or increase diversification is a legitimate reason, and rebalancing can be helpful in achieving that goal. But the goal itself is not to rebalance.

A rebalanced portfolio of stocks and bonds virtually never has a higher expected return than a portfolio of just stocks. So it must follow that only reason people should hold bonds is reduce risk. Rebalancing is a tool, in other words, not a goal.
I was going to argue with you... But I agree. You don't own bonds to rebalance, you hold them for other reasons. But if you hold bonds, and want to maintain your AA, then you'll likely rebalance at some point. It's "what you do" not "why you do".
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Thesaints »

Series I are presently the best indexed bond option available. If one wants inflation-indexed bonds in their portfolio, I can't see a reason not to have them on top of the shopping list.

On the other hand, Series EE are not such a good option at all. Their running interest is close to zero. One can get many times as much interest from Ally Bank etc.
The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.

The comparison is quite easy. Given the 5 year penalty on savings bonds, let's take the corresponding 5-year yields of marketable treasuries:

Series I: 0% vs. 5-year TIPS: -1.71%
Series EE: 0.1% vs. 5-year T-note: 0.81%
'nuff said.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by vineviz »

Thesaints wrote: Tue Apr 20, 2021 3:38 pm The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.
It's true that Series EE bonds are generally only appropriate for investors who can hold the bonds for 20+ years, but this is true for virtually everyone who is still saving for retirement.

What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

Thesaints wrote: Tue Apr 20, 2021 3:38 pm Series I are presently the best indexed bond option available. If one wants inflation-indexed bonds in their portfolio, I can't see a reason not to have them on top of the shopping list.

On the other hand, Series EE are not such a good option at all. Their running interest is close to zero. One can get many times as much interest from Ally Bank etc.
The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.

The comparison is quite easy. Given the 5 year penalty on savings bonds, let's take the corresponding 5-year yields of marketable treasuries:

Series I: 0% vs. 5-year TIPS: -1.71%
Series EE: 0.1% vs. 5-year T-note: 0.81%
'nuff said.
My use of EE Bonds isn't necessarily based on the rate. As you noted, other investments will likely have better returns over the next 20 years (the only time period relevant IMHO).

But what EE Bonds give me is predictability. Which IMHO is one of their key advantages. Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total. Of that, the original $20k invested each year is returned tax free (return of principle), the $20k in interest is state tax free.

EE Bonds are basically a DIY Annuity. I'm not expecting them to get me rich, and they'll make up a very small fraction of my overall portfolio. But I'm very happy with the role they'll play in our retirement plan.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Big Dog »

BogleMelon wrote: Mon Apr 19, 2021 11:44 pm 1 reason: simplicity. I wish I could buy i bonds in my brokerage account
In addition to 1, #2 is no way to add beneficiaries to a joint account. Just too much of a hassle for this investor.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Sammy_M »

vineviz wrote: Tue Apr 20, 2021 3:58 pm What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
Not exactly risk-free, but some multi-year guaranteed annuities (MYGAs) are paying very near that on a tax deferred basis, and can be rolled at the maturity to keep the deferral going.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Thesaints »

vineviz wrote: Tue Apr 20, 2021 3:58 pm
Thesaints wrote: Tue Apr 20, 2021 3:38 pm The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.
It's true that Series EE bonds are generally only appropriate for investors who can hold the bonds for 20+ years, but this is true for virtually everyone who is still saving for retirement.

What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
The main issue is that 3.5% may look good now, but may be terrible in let's say 10-15 years. In order to consider Series EE as a "3.5% bond" one has to be locked in for 20 years and that's a risk. Just imagine buying a Series EE in 1971 and you'll understand what I mean
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by vineviz »

Thesaints wrote: Tue Apr 20, 2021 5:48 pm
vineviz wrote: Tue Apr 20, 2021 3:58 pm
Thesaints wrote: Tue Apr 20, 2021 3:38 pm The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.
It's true that Series EE bonds are generally only appropriate for investors who can hold the bonds for 20+ years, but this is true for virtually everyone who is still saving for retirement.

What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
The main issue is that 3.5% may look good now, but may be terrible in let's say 10-15 years. In order to consider Series EE as a "3.5% bond" one has to be locked in for 20 years and that's a risk. Just imagine buying a Series EE in 1971 and you'll understand what I mean
In 10 or 15 years the "yield to maturity" of EE bonds will no longer be 3.5%: it'll be somewhere in the range of 8% to 15%.

And you've got the risk backwards: the 3.54% 20-year yield is a certainty: there's not risk there. Each bond purchased for $25 today will be worth at least $50 in 20 years. Period. The risk comes from trying to time the bond/CD markets: investing at lower rates now in hopes of moving up to higher rates later. That strategy will only pay off if bond yields have stratospheric increases. You'd need the yield on 1-year Treasuries to be something like 7%+ in 2041 to beat the guaranteed return on EE savings bonds.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Thesaints »

It is 3.5% nominal.
Again, picture someone buying an EE in 1971.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by SnowBog »

Thesaints wrote: Tue Apr 20, 2021 11:29 pm It is 3.5% nominal.
Again, picture someone buying an EE in 1971.
The current rates and 20 doubling period reflect the current low interest rate environment... (It's been a shorter doubling period and/or higher interest rate in prior periods with higher interest.)
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by alluringreality »

Thesaints wrote: Tue Apr 20, 2021 11:29 pm It is 3.5% nominal.
Again, picture someone buying an EE in 1971.
Why would someone buy a 3.5% rate in 1971 when the market rate was around 6%? Clearly there are historical periods with inflation above 3.5%, such as the one noted. Generally EE bonds pay off in limited inflation, and I bonds could pay more in higher inflation. It’s probably difficult to say in advance which savings bonds inflation favors over the next 20 years. EE bonds have some liquidity risk in comparison to I bonds, which could end up as either a positive or negative real return, before federal taxes. I bonds have less inflation risk in comparison to EE bonds, since I bond payments in relation to inflation are generally known at purchase.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Mel Lindauer »

SnowBog wrote: Wed Apr 21, 2021 12:05 am
Thesaints wrote: Tue Apr 20, 2021 11:29 pm It is 3.5% nominal.
Again, picture someone buying an EE in 1971.
The current rates and 20 doubling period reflect the current low interest rate environment... (It's been a shorter doubling period and/or higher interest rate in prior periods with higher interest.)
That's true. The past EE Bond interest rate and doubling periods have reflected what were the current interest rate environments when they were issued.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by trizzle »

My reason for not maxing out ibonds is simply Treasury Direct. Wife and I did the 10K each for several years but after getting locked out of Treasury Direct multiple times (each having to call hem to unlock) I wasn't convinced my wife would be able to get into the accounts in the event something happened to me. So we liquidated all our ibonds this year - which is a pity because I do very much like the product. In the end, simplifying and minimizing the number of accounts we have to keep track of won out.

-t
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by l1am »

1. Simplicity. I don't want to have to deal with another account, plus maturing i-bonds in 30 years.
2. I really don't see the point when I can just up my VBTLX/VWIUX exposure instead, to balance risk in that timeframe.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Grt2bOutdoors »

vineviz wrote: Tue Apr 20, 2021 3:58 pm
Thesaints wrote: Tue Apr 20, 2021 3:38 pm The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.
It's true that Series EE bonds are generally only appropriate for investors who can hold the bonds for 20+ years, but this is true for virtually everyone who is still saving for retirement.

What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
The 20 years to maturity Treasury bond isn’t paying that either. Someone who is constructing a liability matching portfolio cares about the certainty of some sum of dollars being available at the exact date they need it. No equity will do that, of course we can point to historical returns but the funny thing about sequence of returns is the price can move in the opposite direction at any time and you can watch it implode too. Yes, I’m aware diversified portfolios reduce that likelihood but you don’t see the FDIC or US Treasury seal on a stock certificate, now do you? Why do you think insurance companies hold vast portfolios of mainly fixed income with the exception of Berkshire Hathaway and a few others? Match liabilities.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Grt2bOutdoors »

SnowBog wrote: Tue Apr 20, 2021 4:24 pm
Thesaints wrote: Tue Apr 20, 2021 3:38 pm Series I are presently the best indexed bond option available. If one wants inflation-indexed bonds in their portfolio, I can't see a reason not to have them on top of the shopping list.

On the other hand, Series EE are not such a good option at all. Their running interest is close to zero. One can get many times as much interest from Ally Bank etc.
The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.

The comparison is quite easy. Given the 5 year penalty on savings bonds, let's take the corresponding 5-year yields of marketable treasuries:

Series I: 0% vs. 5-year TIPS: -1.71%
Series EE: 0.1% vs. 5-year T-note: 0.81%
'nuff said.
My use of EE Bonds isn't necessarily based on the rate. As you noted, other investments will likely have better returns over the next 20 years (the only time period relevant IMHO).

But what EE Bonds give me is predictability. Which IMHO is one of their key advantages. Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total. Of that, the original $20k invested each year is returned tax free (return of principle), the $20k in interest is state tax free.

EE Bonds are basically a DIY Annuity. I'm not expecting them to get me rich, and they'll make up a very small fraction of my overall portfolio. But I'm very happy with the role they'll play in our retirement plan.
+1 Exactly.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by HomerJ »

vineviz wrote: Tue Apr 20, 2021 3:58 pm
Thesaints wrote: Tue Apr 20, 2021 3:38 pm The only salvation from a rotten investment would be the 3.5% bonus at the stroke of 20-years. 20 years are an extremely long time and 3.5% ain't such a jackpot. What, if 10 years from now interests have considerably risen ? One would have already missed out on the interest differential (about 0.6% presently) for 10 years and going forward they would be missing on much more money. This, not even considering the case when one has to sell.
It's true that Series EE bonds are generally only appropriate for investors who can hold the bonds for 20+ years, but this is true for virtually everyone who is still saving for retirement.

What other risk-free investment can be purchased with a 20-year maturity and a rate of 3.54%? Certainly no CDs will do that.
Except EE bonds are not 100% risk-free... There is still an inflation risk. But that's true of all CDs and bonds other than I bonds and TIPs.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by watchnerd »

SnowBog wrote: Tue Apr 20, 2021 4:24 pm Buying $10k for each spouse for say 5 years means we'll get $40k/year each year for $200k total.
How many spouses do you have??

$10k x 2 = $20k year?

Or did you mean $10k of each type (I, EE) per spouse?
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by alluringreality »

watchnerd wrote: Wed Apr 21, 2021 10:33 am How many spouses do you have??
While amusing, they're including the 20 year doubling.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by anon_investor »

alluringreality wrote: Wed Apr 21, 2021 10:37 am
watchnerd wrote: Wed Apr 21, 2021 10:33 am How many spouses do you have??
While amusing, they're including the 20 year doubling.
I don't think I could handle doubling of spouses at 20 years... :twisted:
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by alluringreality »

anon_investor wrote: Wed Apr 21, 2021 10:38 am I don't think I could handle doubling of spouses at 20 years... :twisted:
Yeah, that one was good too.
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by Hebell »

Many years ago, I told my husband when he became 54 he'd get traded in for two 27 year olds. (He was fine indeed at age 27 so it was a somewhat backhanded compliment). That doubling did not happen either!
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Re: Any Reason to NOT max out I Bonds and EE Bonds

Post by tonyclifton »

Three reasons:

1. You could get a greater return by investing in total stock market index funds if you plan to hold the investment for 20 years.

2. Your investment policy statement or financial goals don't have a long term plan for fixed income or your asset allocation for bonds is full.

3. You cannot commit to holding EE Bonds for 20 years.
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