What's the catch with I Bonds?

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MishkaWorries
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

vineviz wrote: Thu Jun 03, 2021 11:29 am
MishkaWorries wrote: Thu Jun 03, 2021 11:10 am
UpperNwGuy wrote: Thu Jun 03, 2021 8:01 am
nisiprius wrote: Thu Jun 03, 2021 6:54 am So I am going to present an hypothesis. If government debt is truly a serious problem, I would predict that there will be a renaissance of the savings bond program, with the purchase limits being increased the government again promoting the program in advertising... and that the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government.
There's the catch: current rates are favorable to the purchaser and not favorable to the government. Sooner or later, that will change.
I'm lost.

The current fixed rate for an I-bond is 0% plus the official government inflation rate. How can it get more favorable for the government? Unless the fudge the inflation numbers or discontinue I-bonds. Maybe you guys are just talking about government bonds other than I-bonds.
The rate on Series I savings bonds is less favorable to the government than the rate on other securities with similar characteristics.
As to I-bonds, I'm still not understanding the risk or catch of "the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government." What can the government do?
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HomerJ
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Re: What's the catch with I Bonds?

Post by HomerJ »

livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
We have 5% of our money in Ibonds, working towards 10% at least, and probably 15%.

It's a nice floor to have of inflation-protected money that will never go down in value.

A couple can buy $20,000 a year.

Only takes 5 years to build up $100,000 - 10 years to build up $200,000. That's a solid safety net.
Last edited by HomerJ on Thu Jun 03, 2021 12:20 pm, edited 1 time in total.
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Re: What's the catch with I Bonds?

Post by HomerJ »

I'm hoping to slowly build up to $400,000 in an ibond ladder. Not what I would call a distraction, but I'm not as rich as some people.

20 years of $20,000 contributions.

That will be a big chunk of the 50% I plan to keep in bonds/cash/CDs throughout retirement.

I'm 52 now, when I take Social Security, I'll start cashing out the ibonds as well....

So I'll have SS, plus $20,000 a year, all inflation-protected.... SS for life, the $20,000 for 20 years. (say from 67-87).
Last edited by HomerJ on Thu Jun 03, 2021 1:56 pm, edited 2 times in total.
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Re: What's the catch with I Bonds?

Post by #Cruncher »

nisiprius wrote: Thu Jun 03, 2021 6:27 am Just to add context to update the chart I posted above. Early series I savings bonds outperformed VBTLX. But not recently.
Your chart shows a $10,000 I Bond with 0.70% Fixed Rate Purchased January 2009 growing to $13,540 by January 2021. The following table [1] shows the growth of $10,000 invested in I Bonds every six months from May 2008 [2] through November 2020. By November 2021 this $260,000 investment will have grown to $301,348; a 2.01% annual rate of return.

Code: Select all

  6                  Face   Fixed   11/2021
  7      Bought     Value    Rate     Value

Code: Select all

  9      5/2008    10,000    0.0%    13,184
 10     11/2008    10,000    0.7%    13,992
 11      5/2009    10,000    0.1%    12,712
 12     11/2009    10,000    0.3%    12,984
 13      5/2010    10,000    0.2%    12,644
 14     11/2010    10,000    0.0%    12,272
 15      5/2011    10,000    0.0%    12,232
 16     11/2011    10,000    0.0%    11,952
 17      5/2012    10,000    0.0%    11,772
 18     11/2012    10,000    0.0%    11,640
 19      5/2013    10,000    0.0%    11,548
 20     11/2013    10,000    0.2%    11,644
 21      5/2014    10,000    0.1%    11,484
 22     11/2014    10,000    0.0%    11,300
 23      5/2015    10,000    0.0%    11,220
 24     11/2015    10,000    0.1%    11,280
 25      5/2016    10,000    0.1%    11,192
 26     11/2016    10,000    0.0%    11,128
 27      5/2017    10,000    0.0%    10,972
 28     11/2017    10,000    0.1%    10,908
 29      5/2018    10,000    0.3%    10,848
 30     11/2018    10,000    0.5%    10,768
 31      5/2019    10,000    0.5%    10,628
 32     11/2019    10,000    0.2%    10,464
 33      5/2020    10,000    0.0%    10,316
 34     11/2020    10,000    0.0%    10,264
                  -------           -------
            Sum   260,000           301,348
Portfolio Visualizer shows a similar investment in VBTLX would have grown to $336,000 by May 2021. [3]

RubyTuesday wrote: Thu Jun 03, 2021 9:10 amI believe (too lazy to check) TD doesn’t show interest for bonds which cannot be redeemed yet (less than 1 year) ...
No, TreasuryDirect does show the value three months previously for all I Bonds purchased less than five years ago -- even ones which can't yet be redeemed. I just checked today and for the value of I Bonds I purchased January TD shows their value as of March ($100.28 for a $100 purchase). So in September Old Guy should see a value higher than his May purchase amount. (See his post.)
  1. Prepared with my I Bond Portfolio Calculator Excel workbook.
  2. May 2008 is the first month that I Bonds had a 0% fixed rate.
  3. I chose monthly from May 2008 to May 2021 with a $5,000 initial investment and $5,000 contributed quarterly (PV doesn't allow semi-annual contributions).
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Re: What's the catch with I Bonds?

Post by Old Guy »

I still have 19 I bonds from the 27 I purchased in 2001. Worth $51,000+ now. Pretty good for a safe investment.
Last edited by Old Guy on Thu Jun 03, 2021 3:07 pm, edited 2 times in total.
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Re: What's the catch with I Bonds?

Post by LilyFleur »

tibbitts wrote: Thu Jun 03, 2021 12:19 am
Buy_N_Hold wrote: Wed Jun 02, 2021 8:18 pm There seems to be increasing dialogue about the relative attractiveness of I Bonds, given where interest rates are currently. Jason Zweig had a great little article in the WSJ recently about them, and I have followed a few threads on the forum here of late that have been instructive.

Does anyone know why the yield seems to be so much higher than other comparable alternatives? 3.54% with a one year lock-up provision seems like a home run for most investors. I guess my question is where is this figure coming from? Is 3.54% the prediction of inflation over the next 12 months, with the idea being that the bonds will retain their purchasing power?

Is there something I am missing about I Bonds? I have seen some comments about the TD website being clunky to use. Is there anything else I should know before adding a few of these to my fixed income portion of my AA?
If you're asking "where is this figure coming from?", you might want to learn more about I-bonds before deciding whether to buy them. There are pros and cons, particularly if you're setting up a TD account just now. Remember that not only do you have to understand I-bonds, you have to explain them to your beneficiaries, so they'll know what to do with them should the need arise. It'll be yet another account for them to deal with. Also, if you defer interest, make sure you're prepared for the tax hit down the road, and how that timing will fit with other events (RMDs, Social Security, etc.)
Exactly. I'm streamlining my estate for my beneficiaries. For many of us on this forum nearer the end of our lifespans, the $10,000 yearly limit could be a drop in the bucket. I'm thinking I will stay in my stable value fund for part of my fixed income (along with a bond index fund), and invest in equities in my Roth for my beneficiaries. I just sold 75, yes you heard that right, 75 paper EE bonds last year to streamline my estate, and paid the taxes. I would not have wished that task on my children. Now it's in a TOD account that already existed, so that is one less thing they'll have to deal with while grieving the loss of their mother.
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Re: What's the catch with I Bonds?

Post by nisiprius »

livesoft wrote: Thu Jun 03, 2021 8:27 am I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds?
Me.

Over 10%.

For privacy reasons I prefer not to give exact numbers. I started buying them long before I joined the forum and started reading Mel Lindauer's postings. They're a decent investment that can be a meaningful part of a portfolio for a "mass affluent" investor. It was always easy enough to see that they were decent if you could get past the weirdness of hardly anybody ever talking about them.

It would be hard to do with the $10,000/person annual purchase limit. I've never quite had the nerve to fiddle around with the tax-refund option, particularly when posters have said they get a random assortment of denominations. And, yeah, the vintage 2000-2001-2002 issues I own pay a lot more than current issues.
And what is the largest expected fraction that you hope to attain?
I expect it to decline. In fact it declined precipitously three or four years ago, when I redeemed about 20% of our I bonds--everything held electronically at Treasury Direct. I did that for the exact issues you mentioned: simplicity, one less account for any custodian to track, and also because of a slow realization that you cannot purchase truly co-owned* bonds at Treasury Direct.

(Truly co-owned bonds can be redeemed by either owner without the other's permission or even knowledge, and therefore can be redeemed without present a death certificate or any other estate-related paperwork).
Last edited by nisiprius on Thu Jun 03, 2021 1:00 pm, edited 4 times in total.
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Re: What's the catch with I Bonds?

Post by calwatch »

I'm at around 8% of investable assets in I Bonds and just started with EE Bonds recently. I do plan on purchasing them for the foreseeable future, although I reserve the right to redeem them (and have) when better opportunities present themselves, or when I need cash for large expenses like a down payment for a home or buying a new car. Long term, my goal is to have two or three years of fixed expenses in savings bonds (i.e. housing and transportation costs, insurance, food).
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Re: What's the catch with I Bonds?

Post by vineviz »

MishkaWorries wrote: Thu Jun 03, 2021 12:00 pm As to I-bonds, I'm still not understanding the risk or catch of "the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government." What can the government do?
There's no risk for savings bonds that have already been purchased. I think the warning is merely that the Treasury might, at some future date, be forced to issue new savings bonds with terms less favorable to investors than they currently are.

Not something to worry about, and neither a "risk" nor a "catch" IMHO.
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Re: What's the catch with I Bonds?

Post by MishkaWorries »

vineviz wrote: Thu Jun 03, 2021 2:19 pm
MishkaWorries wrote: Thu Jun 03, 2021 12:00 pm As to I-bonds, I'm still not understanding the risk or catch of "the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government." What can the government do?
There's no risk for savings bonds that have already been purchased. I think the warning is merely that the Treasury might, at some future date, be forced to issue new savings bonds with terms less favorable to investors than they currently are.

Not something to worry about, and neither a "risk" nor a "catch" IMHO.
Gotcha. Thanks for taking the time to answer. I'm honored.
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Re: What's the catch with I Bonds?

Post by nisiprius »

Oops, in an aside I phrased something sloppily and touched off a misunderstanding. It is close to unthinkable to me that the Treasury would default on an issued I bond--that is, fail to honor the promised terms when issued.

Vineviz and MishkaWorries are correct.

I think existing holdings of I bonds are as safe as anything in the world.

I'm going to delete that paragraph of my previous posting.
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Re: What's the catch with I Bonds?

Post by RubyTuesday »

#Cruncher wrote: Thu Jun 03, 2021 12:32 pm
RubyTuesday wrote: Thu Jun 03, 2021 9:10 amI believe (too lazy to check) TD doesn’t show interest for bonds which cannot be redeemed yet (less than 1 year) ...
No, TreasuryDirect does show the value three months previously for all I Bonds purchased less than five years ago -- even ones which can't yet be redeemed. I just checked today and for the value of I Bonds I purchased January TD shows their value as of March ($100.28 for a $100 purchase). So in September Old Guy should see a value higher than his May purchase amount. (See his post.)
  1. Prepared with my I Bond Portfolio Calculator Excel workbook.
  2. May 2008 is the first month that I Bonds had a 0% fixed rate.
  3. I chose monthly from May 2008 to May 2021 with a $5,000 initial investment and $5,000 contributed quarterly (PV doesn't allow semi-annual contributions).
So the value shown isn’t higher because of the 3 month penalty not the inability to redeem. Got it! Thanks
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Re: What's the catch with I Bonds?

Post by SmileyFace »

livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I am approaching 2% now and this will grow slightly over the next several years. It's not really a distraction to me - one more line on a spreadsheet and one more account to watch isn't distracting me. Increasing my tax deferral by $20K a year and having some bond diversification (with inflation protection) are the reasons I buy them (along with them doing double duty as a 2nd tier emergency fund). Every January I spend 5 minutes buying $20K. When I retire I plan to spend 5 minutes every January selling some.
Interesting you say the amount small - it's not much smaller than yearly 401K caps and is actually larger than IRA caps and I assume you don't fault those as being too small and distracting. My percentage would be much higher had I caught onto them years earlier.
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Re: What's the catch with I Bonds?

Post by livesoft »

SmileyFace wrote: Thu Jun 03, 2021 4:02 pm Interesting you say the amount small - it's not much smaller than yearly 401K caps and is actually larger than IRA caps and I assume you don't fault those as being too small and distracting.
Excellent points, thanks.
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Re: What's the catch with I Bonds?

Post by JBTX »

livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I'm about 5%.

I think you aren't looking at it correctly. For those that may be inclined to have an emergency or liquidity fund, ibonds are a pretty good way to contribute to that and your bond allocation, defer taxes and allow more equity to stay in tax advantaged.

You could buy $25k per year, or $35k if you have an RLT. That's $250k - $300k over 10 years. A $2 million total portfolio at 75/25 would be $500k bonds. Ibonds could be half of that or more. You could do eebonds for even a bigger chunk.

I guess for people that only one one or two accounts and 3 funds, maybe they aren't worth it. But for those of us who may have multiple iras and 401ks between 2 spouses the incremental "distraction" is negligible.
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Re: What's the catch with I Bonds?

Post by JBTX »

livesoft wrote: Thu Jun 03, 2021 4:18 pm
SmileyFace wrote: Thu Jun 03, 2021 4:02 pm Interesting you say the amount small - it's not much smaller than yearly 401K caps and is actually larger than IRA caps and I assume you don't fault those as being too small and distracting.
Excellent points, thanks.
It's an interesting point. I hear people rearranging their iras/401ks for the ability to do backdoor Roths.
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Re: What's the catch with I Bonds?

Post by livesoft »

So now we have to put I-bonds in the "Prioritizing investments order" list somewhere, right?
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Re: What's the catch with I Bonds?

Post by mindboggling »

livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I've been investing in I-bonds for the last 15 years (though not every year at the full limit). Currently, they are about 9% of my investment portfolio. 68 y/o, retired. I expect to continue buying them.
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Re: What's the catch with I Bonds?

Post by sapphire96 »

livesoft wrote: Thu Jun 03, 2021 4:30 pm So now we have to put I-bonds in the "Prioritizing investments order" list somewhere, right?
I-Bonds should have its own mega thread, IMO.
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Re: What's the catch with I Bonds?

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sapphire96 wrote: Thu Jun 03, 2021 4:38 pmI-Bonds should have its own mega thread, IMO.
I think you are reading it. :)
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Re: What's the catch with I Bonds?

Post by Clever_Username »

livesoft wrote: Thu Jun 03, 2021 8:27 am
What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I updated my spreadsheet Monday; 8.15%. That's going to increase when I buy more I Bonds in three weeks or so (I meant to buy at the end of May, but I delayed until after COM on Friday, so I couldn't place a purchase order that would happen before June 1... oops).
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Re: What's the catch with I Bonds?

Post by ivk5 »

livesoft wrote: Thu Jun 03, 2021 8:27 am What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?
I tell myself it’s 10% of my fixed income rather than admitting it’s 2.5% of overall portfolio. Now you’ve got me questioning whether this is worth the hassle. But as I’ve commented elsewhere (link) I deliberately scratch my tinkering/over-complicating itches on the fixed income side where it’s mostly harmless.
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Re: What's the catch with I Bonds?

Post by Clever_Username »

In reading the rest of the thread after my above comment, I realized I missed the question about what we expect the Series I Bonds to become as our investment.

I suppose mine are going to rise, but not by too much. The annual I Bond purchase (I buy the $10,000 maximum, but I do not do the "buy with tax refund" trick, and I'm on my own otherwise) is about 10% of my annual accrual. For asset allocation purposes, they're part of the conservative assets in my portfolio (the rest of that is a mix of total bond in some tax-advantaged space and government bond funds in taxable). I suppose the stock portion is going to grow more most years, and when I rebalance, I can't really rebalance into Series I.

They're a good layer of my emergency plan and serve like an inflation-indexed cash savings account, which is what I use them for.
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Re: What's the catch with I Bonds?

Post by manuvns »

i think it is a good place to keep emergency funds . no catch
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

JBTX wrote: Thu Jun 03, 2021 4:19 pm
livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I'm about 5%.

I think you aren't looking at it correctly. For those that may be inclined to have an emergency or liquidity fund, ibonds are a pretty good way to contribute to that and your bond allocation, defer taxes and allow more equity to stay in tax advantaged.

You could buy $25k per year, or $35k if you have an RLT. That's $250k - $300k over 10 years. A $2 million total portfolio at 75/25 would be $500k bonds. Ibonds could be half of that or more. You could do eebonds for even a bigger chunk.

I guess for people that only one one or two accounts and 3 funds, maybe they aren't worth it. But for those of us who may have multiple iras and 401ks between 2 spouses the incremental "distraction" is negligible.
Remember, too, that in 10 years the $250k - $300k that someone invested over that time frame could be worth substantially more than $250-$300k, depending on the inflation adjustments over the years and any fixed rate above 0% that one was able to get in the future. So it's not chicken feed by any stretch of the imagination.

And, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
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Re: What's the catch with I Bonds?

Post by okwriter »

JBTX wrote: Thu Jun 03, 2021 4:22 pm
livesoft wrote: Thu Jun 03, 2021 4:18 pm
SmileyFace wrote: Thu Jun 03, 2021 4:02 pm Interesting you say the amount small - it's not much smaller than yearly 401K caps and is actually larger than IRA caps and I assume you don't fault those as being too small and distracting.
Excellent points, thanks.
It's an interesting point. I hear people rearranging their iras/401ks for the ability to do backdoor Roths.
Interestingly there is an article about a backdoor to I bonds.

https://thefinancebuff.com/backdoor-to- ... bonds.html
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Re: What's the catch with I Bonds?

Post by JBTX »

Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pm
JBTX wrote: Thu Jun 03, 2021 4:19 pm
livesoft wrote: Thu Jun 03, 2021 8:27 am
HueyLD wrote: Thu Jun 03, 2021 8:17 am A distraction? Please have mercy on us, those poor souls without a fat wallet.
It is rather interesting to me that many of the posts on bogleheads.org are about having a simple investing portfolio without increasing the number of custodians. In other words, I-bonds can still be a distraction to folks with a thin wallet.

Also it is not rare to read comments about smaller portfolio holdings in terms of percentages or fractions under 10% are not going to move the needle much. I'd like to know who has at least 5% and at least 10% of their portfolio in I-bonds? I know one has to start at 0%, so I realize that it can be a work in progress, but do those folks with less than 5% of their portfolio in I-bonds expect their I-bonds to become more than 10% of their portfolio?

What fraction of your total invested portfolio is composed of I-bonds? And what is the largest expected fraction that you hope to attain?

(I can answer for myself: 0% nowadays, but I think you all knew that already.)
I'm about 5%.

I think you aren't looking at it correctly. For those that may be inclined to have an emergency or liquidity fund, ibonds are a pretty good way to contribute to that and your bond allocation, defer taxes and allow more equity to stay in tax advantaged.

You could buy $25k per year, or $35k if you have an RLT. That's $250k - $300k over 10 years. A $2 million total portfolio at 75/25 would be $500k bonds. Ibonds could be half of that or more. You could do eebonds for even a bigger chunk.

I guess for people that only one one or two accounts and 3 funds, maybe they aren't worth it. But for those of us who may have multiple iras and 401ks between 2 spouses the incremental "distraction" is negligible.
Remember, too, that in 10 years the $250k - $300k that someone invested over that time frame could be worth substantially more than $250-$300k, depending on the inflation adjustments over the years and any fixed rate above 0% that one was able to get in the future. So it's not chicken feed by any stretch of the imagination.

And, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
A $20k contribution would be 10% of a family $200k annual income.
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Re: What's the catch with I Bonds?

Post by LadyGeek »

sapphire96 wrote: Thu Jun 03, 2021 4:38 pm
livesoft wrote: Thu Jun 03, 2021 4:30 pm So now we have to put I-bonds in the "Prioritizing investments order" list somewhere, right?
I-Bonds should have its own mega thread, IMO.
Only if it makes sense to do so. I don't see any similar threads so far.

If anyone sees threads that can be combined, please report the post (for each thread) and explain what to do.
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Re: What's the catch with I Bonds?

Post by tibbitts »

rebellovw wrote: Thu Jun 03, 2021 8:55 am What is the age cut off - or when is it really not worth it - I'm 55 - I'd start buying now - what age would it make sense to stop buying?

I guess unlike EE bonds - I can simply take them at 10 years, 15 years - even sooner w/o penalty (to some extent.) Or perhaps in my 80's I might be greatful...

Perhaps I'll start buying each year....
But there's another aspect to the age appropriateness, and that's the complexity of dealing with I and EE bonds. If they turn out to be good investments - as good as they were a couple of decades ago or more - then while you can still add 2 + 2 and get 4, you won't want to give them up before maturity. Then one day you might add 2+ 2 and get 317, at which point somebody else is going to have to know enough, and be interested enough, to deal with your TD account in a timely fashion.
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Re: What's the catch with I Bonds?

Post by anon_investor »

tibbitts wrote: Thu Jun 03, 2021 6:14 pm
rebellovw wrote: Thu Jun 03, 2021 8:55 am What is the age cut off - or when is it really not worth it - I'm 55 - I'd start buying now - what age would it make sense to stop buying?

I guess unlike EE bonds - I can simply take them at 10 years, 15 years - even sooner w/o penalty (to some extent.) Or perhaps in my 80's I might be greatful...

Perhaps I'll start buying each year....
But there's another aspect to the age appropriateness, and that's the complexity of dealing with I and EE bonds. If they turn out to be good investments - as good as they were a couple of decades ago or more - then while you can still add 2 + 2 and get 4, you won't want to give them up before maturity. Then one day you might add 2+ 2 and get 317, at which point somebody else is going to have to know enough, and be interested enough, to deal with your TD account in a timely fashion.
Easier for heirs to deal with a TD account than looking around for paper savings bonds scattered about...
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Re: What's the catch with I Bonds?

Post by ReallyLikeToSave »

Hi - related to starting late (50) and ability to purchase a 'meaningful' amount. Is it true that I can also purchase for my children with their SSN (under 18). This is in addition to the 10k and 5k from annual tax refund. So in a family of 2 adults and 2 children I could purchase
Adult 1 15k
Adult 2 15k
Child 1 10k (*)
Child 2 10k
50k per year would be a good way to grow this quickly IMHO.

(*) it might be the case that my children have W2 income and refunds so perhaps they are eligible for the 5k amount also ?

Do I understand this correctly, has anyone done this ?

Bill
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Re: What's the catch with I Bonds?

Post by tibbitts »

anon_investor wrote: Thu Jun 03, 2021 6:22 pm
tibbitts wrote: Thu Jun 03, 2021 6:14 pm
rebellovw wrote: Thu Jun 03, 2021 8:55 am What is the age cut off - or when is it really not worth it - I'm 55 - I'd start buying now - what age would it make sense to stop buying?

I guess unlike EE bonds - I can simply take them at 10 years, 15 years - even sooner w/o penalty (to some extent.) Or perhaps in my 80's I might be greatful...

Perhaps I'll start buying each year....
But there's another aspect to the age appropriateness, and that's the complexity of dealing with I and EE bonds. If they turn out to be good investments - as good as they were a couple of decades ago or more - then while you can still add 2 + 2 and get 4, you won't want to give them up before maturity. Then one day you might add 2+ 2 and get 317, at which point somebody else is going to have to know enough, and be interested enough, to deal with your TD account in a timely fashion.
Easier for heirs to deal with a TD account than looking around for paper savings bonds scattered about...
Well, maybe. When I had paper I kept them in the safe deposit box, where they'd very likely be found. However the main problem is making sure that beneficiaries are up-to-date (essentially impossible with paper bonds, of course) and making sure that beneficiaries understand all the nuances of both your I and EE bonds. And there are a lot of nuances, which are less commonly known, vs. many other investments.
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Re: What's the catch with I Bonds?

Post by calwatch »

ReallyLikeToSave wrote: Thu Jun 03, 2021 6:34 pm Hi - related to starting late (50) and ability to purchase a 'meaningful' amount. Is it true that I can also purchase for my children with their SSN (under 18). This is in addition to the 10k and 5k from annual tax refund. So in a family of 2 adults and 2 children I could purchase
Adult 1 15k
Adult 2 15k
Child 1 10k (*)
Child 2 10k
50k per year would be a good way to grow this quickly IMHO.

(*) it might be the case that my children have W2 income and refunds so perhaps they are eligible for the 5k amount also ?

Do I understand this correctly, has anyone done this ?

Bill
With the tax refund idea, it's $5,000 per return. So assuming Adult 2 is a spouse, they would have to be married filing separately to get the additional I bond, which may cause other issues related to Roth eligibility and other credits. And the amount purchased for the child would need to be used for the child's benefit, and you do have to confirm that when you take money out on TD (although whether you do or not is never audited by the government). If you are self-employed, or have 1099 self-employment income, I might go the sole proprietorship route as a way to get another 10k instead of purchasing on behalf of a child.
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Re: What's the catch with I Bonds?

Post by spdoublebass »

okwriter wrote: Thu Jun 03, 2021 6:44 am
Xigris1234 wrote: Thu Jun 03, 2021 5:38 am
okwriter wrote: Thu Jun 03, 2021 3:00 am The catch is that you can only buy $10,000 of the "3.54%" bonds, and that 3.54% is actually a 0% fixed rate + 3.54% variable rate. The variable part of the rate is guaranteed only for 6 months, so half of 3.54% of $10K = $177 before taxes. I don't find it all that exciting.

If the fixed rate was 3.54%, it would be a great deal.
What do you recommend as a more exciting investment for surplus cash?
EE bonds, which do have a fixed rate of 3.5%.

(It takes 20 years, but they will do better than this year's I-bonds unless inflation averages 3.5% for the next 20 years.)
Two question just to make sure I understand:

1. 2% expected inflation is what we have now right? So the Real return of EE bonds in 20 years is equivalent to 1.5% real return right? So right now, EE bonds will only beat out I bonds by 1.5% right? If inflation is 1.5% more than expected on average, I bonds would be a better buy right?

2. Half of 3.54% of $10K = $177 before taxes, but then it compounds monthly for the rest of the 19.5 years right? I think the compounding feature is also a nice feature of I Bonds.
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Re: What's the catch with I Bonds?

Post by RubyTuesday »

spdoublebass wrote: Thu Jun 03, 2021 6:48 pm
okwriter wrote: Thu Jun 03, 2021 6:44 am
Xigris1234 wrote: Thu Jun 03, 2021 5:38 am
okwriter wrote: Thu Jun 03, 2021 3:00 am The catch is that you can only buy $10,000 of the "3.54%" bonds, and that 3.54% is actually a 0% fixed rate + 3.54% variable rate. The variable part of the rate is guaranteed only for 6 months, so half of 3.54% of $10K = $177 before taxes. I don't find it all that exciting.

If the fixed rate was 3.54%, it would be a great deal.
What do you recommend as a more exciting investment for surplus cash?
EE bonds, which do have a fixed rate of 3.5%.

(It takes 20 years, but they will do better than this year's I-bonds unless inflation averages 3.5% for the next 20 years.)
Two question just to make sure I understand:

1. 2% expected inflation is what we have now right? So the Real return of EE bonds in 20 years is equivalent to 1.5% real return right? So right now, EE bonds will only beat out I bonds by 1.5% right? If inflation is 1.5% more than expected on average, I bonds would be a better buy right?

2. Half of 3.54% of $10K = $177 before taxes, but then it compounds monthly for the rest of the 19.5 years right? I think the compounding feature is also a nice feature of I Bonds.
compounds semi-annually
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Re: What's the catch with I Bonds?

Post by dstac »

rebellovw wrote: Thu Jun 03, 2021 8:55 am What is the age cut off - or when is it really not worth it - I'm 55 - I'd start buying now - what age would it make sense to stop buying?

I guess unlike EE bonds - I can simply take them at 10 years, 15 years - even sooner w/o penalty (to some extent.) Or perhaps in my 80's I might be greatful...

Perhaps I'll start buying each year....
I actually think you are the right age to be buying them as part of a liability matching portfolio if you are more than 5yrs from retirement. You're right that the EE window may be too late for you unless you're looking to start redemptions while also dealing with RMDs.

For those early in their careers (<30) & without kids, emergency fund should likely be Roth IRA where significant compounding can happen. If kids arrive, using EE or I bonds starts to make more sense due to the educational options that I don't believe are available if purchased pre-birth. The value continues as a LMP component to bridge to max social security for potential pre-retirees. What I'd avoid is forced taxable redemptions during peak earning years (often 50's).

As discussed elsewhere, EE's are really a low rate with one banner year. I's are more likely to have consistent rates 1-3% each year.
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Re: What's the catch with I Bonds?

Post by Old Guy »

RubyTuesday wrote: Thu Jun 03, 2021 9:10 amI believe (too lazy to check) TD doesn’t show interest for bonds which cannot be redeemed yet (less than 1 year) ...
No, TreasuryDirect does show the value three months previously for all I Bonds purchased less than five years ago -- even ones which can't yet be redeemed. I just checked today and for the value of I Bonds I purchased January TD shows their value as of March ($100.28 for a $100 purchase). So in September Old Guy should see a value higher than his May purchase amount. (See his post.)
Thank you.
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Re: What's the catch with I Bonds?

Post by calwatch »

dstac wrote: Thu Jun 03, 2021 7:18 pm For those early in their careers (<30) & without kids, emergency fund should likely be Roth IRA where significant compounding can happen. If kids arrive, using EE or I bonds starts to make more sense due to the educational options that I don't believe are available if purchased pre-birth. The value continues as a LMP component to bridge to max social security for potential pre-retirees. What I'd avoid is forced taxable redemptions during peak earning years (often 50's).
As long as the bonds were purchased after age 24, the bonds are redeemable for educational benefits. I agree with funding the Roth first (as the annual allowance vanishes on April 15 of the next year) but after that point, I Bonds are a valuable tool. Perhaps fund the Roth in short term bonds or an online savings account initially and an allowance in I Bonds, and then after the 12 month lock out period is over shift the Roth to stocks or other higher paying investments. The other point is that the limit for educational benefits is relatively low; $123,550 for a couple and $82,350 for a single for full exemption (although this is higher than the AGI of 80% of all taxpayers).
https://www.treasurydirect.gov/forms/savpdp0051.pdf

For I Bonds, if you were still working when bonds were about to mature you might think about redeeming them slowly.

The 20th year crediting benefit of EE Bonds has the benefit of reducing assets for counting of financial aid, and might be beneficial as a strategy to purchase retirement income for a parent of toddlers, once the 401k, IRA, HSA (if applicable) have been fully funded and certainly before any purchase of life insurance or similar ways to "hide" assets for financial aid purposes.
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Re: What's the catch with I Bonds?

Post by Mel Lindauer »

Xigris1234 wrote: Thu Jun 03, 2021 5:38 am
okwriter wrote: Thu Jun 03, 2021 3:00 am The catch is that you can only buy $10,000 of the "3.54%" bonds, and that 3.54% is actually a 0% fixed rate + 3.54% variable rate. The variable part of the rate is guaranteed only for 6 months, so half of 3.54% of $10K = $177 before taxes. I don't find it all that exciting.

If the fixed rate was 3.54%, it would be a great deal.
What do you recommend as a more exciting investment for surplus cash?
I keep seeing folks complaining/commenting about the "low" annual $10k per person I Bond purchase limit.

I would ask why we hardly ever see complaints about the even-lower $6k (or $7k) limit on Traditional and Roth IRAs? Makes no sense to me.

I will admit, though, that it was a lot more fun when the I Bond limit was $30k per person, you could buy them with a credit card and get 2% cash back, and the fixed rates were between 3.0 and 3.6%.
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Re: What's the catch with I Bonds?

Post by jhawktx »

livesoft wrote: Wed Jun 02, 2021 8:23 pm The main catch for me is that one can only purchase a limited dollar amount, so they are just a distraction.
Agreed. A general unwanted PITA.
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Re: What's the catch with I Bonds?

Post by tibbitts »

Mel Lindauer wrote: Thu Jun 03, 2021 8:37 pm
I keep seeing folks complaining/commenting about the "low" annual $10k per person I Bond purchase limit.

I would ask why we hardly ever see complaints about the even-lower $6k (or $7k) limit on Traditional and Roth IRAs? Makes no sense to me.
My guess is that with the available deferred employer plans, there's enough room in tax-advantaged-but-somewhat-restricted space for most people, while people are viewing I-bonds as an alternative savings vehicle for possibly shorter-term (or at least unrestricted) objectives.
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Re: What's the catch with I Bonds?

Post by anon_investor »

Mel Lindauer wrote: Thu Jun 03, 2021 8:37 pm
Xigris1234 wrote: Thu Jun 03, 2021 5:38 am
okwriter wrote: Thu Jun 03, 2021 3:00 am The catch is that you can only buy $10,000 of the "3.54%" bonds, and that 3.54% is actually a 0% fixed rate + 3.54% variable rate. The variable part of the rate is guaranteed only for 6 months, so half of 3.54% of $10K = $177 before taxes. I don't find it all that exciting.

If the fixed rate was 3.54%, it would be a great deal.
What do you recommend as a more exciting investment for surplus cash?
I keep seeing folks complaining/commenting about the "low" annual $10k per person I Bond purchase limit.

I would ask why we hardly ever see complaints about the even-lower $6k (or $7k) limit on Traditional and Roth IRAs? Makes no sense to me.

I will admit, though, that it was a lot more fun when the I Bond limit was $30k per person, you could buy them with a credit card and get 2% cash back, and the fixed rates were between 3.0 and 3.6%.
In the accumulation phase the $20k limit per married couple for electronic I Bonds is plenty; especially with 401k individual contributions, mega backdoor Roth, backdoor Roth, HSA, etc. Slow and steady wins the race!
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Re: What's the catch with I Bonds?

Post by grogu »

Mel Lindauer wrote: Thu Jun 03, 2021 8:37 pm
I keep seeing folks complaining/commenting about the "low" annual $10k per person I Bond purchase limit.

I would ask why we hardly ever see complaints about the even-lower $6k (or $7k) limit on Traditional and Roth IRAs? Makes no sense to me.
Sure, it would be nice if IRA and 401k limits were higher, but maxing both does give you at least $25k a year, per person. More importantly, even if you're only maxing out your IRA each year, if you invest in all stocks, you'd have several times as much as what you started with.
https://dqydj.com/always-maxed-out-your-ira/

Ibonds aren't going to have nearly that kind of growth, so if you really want to own a lot of ibonds, the maximums would prevent you from doing so, even over a long time horizon.
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Re: What's the catch with I Bonds?

Post by okwriter »

spdoublebass wrote: Thu Jun 03, 2021 6:48 pm
okwriter wrote: Thu Jun 03, 2021 6:44 am
Xigris1234 wrote: Thu Jun 03, 2021 5:38 am What do you recommend as a more exciting investment for surplus cash?
EE bonds, which do have a fixed rate of 3.5%.

(It takes 20 years, but they will do better than this year's I-bonds unless inflation averages 3.5% for the next 20 years.)
Two question just to make sure I understand:

1. 2% expected inflation is what we have now right? So the Real return of EE bonds in 20 years is equivalent to 1.5% real return right? So right now, EE bonds will only beat out I bonds by 1.5% right? If inflation is 1.5% more than expected on average, I bonds would be a better buy right?

2. Half of 3.54% of $10K = $177 before taxes, but then it compounds monthly for the rest of the 19.5 years right? I think the compounding feature is also a nice feature of I Bonds.
Yes, 2% inflation is the Fed’s stated target, so that calculation looks reasonable.

And as a poster noted above, it’s semi-annual compounding.

I like I-bonds just fine. I just don’t think they’re as exciting as the “3.54%” number makes them out to be. (Another way to look at it: their real return is 0% before taxes, and negative after taxes. That’s still higher than any other treasury bond besides the EE bond though.)
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Re: What's the catch with I Bonds?

Post by 1moreyr »

I am getting ready to go into retirement and doing so with a 3-4 years cash. I know it sounds like a lot to some but I am having trouble with the leap without it.
I bonds for me will pay at least as well as current CDs and hold the money for a couple years until I get to needing it. It's a short- medium emergency fund. or at least that is how I am testing it out.

if it paid 3.54% for 6 months and 0% for 6-12, it wouldn't be much worse than a current 18 month CD at .65% (I am too lazy to figure out the exact compounding comparison of it all but you get the picture)

the 20K invested for my wife and I won't change much but it's less money sitting in the bank at nothing %
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Re: What's the catch with I Bonds?

Post by Gill »

Mel Lindauer wrote: Thu Jun 03, 2021 8:37 pm

I will admit, though, that it was a lot more fun when the I Bond limit was $30k per person, you could buy them with a credit card and get 2% cash back, and the fixed rates were between 3.0 and 3.6%.
On top of all that, I would avoid paying for the bonds for almost 60 days by buying them immediately after the credit card statement date. Hated to see the party end…
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Re: What's the catch with I Bonds?

Post by livesoft »

Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
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Re: What's the catch with I Bonds?

Post by BrokerageZelda »

livesoft wrote: Fri Jun 04, 2021 8:40 am
Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
I would definitely max out any available retirement accounts (workplace, IRA, HSA) before buying I Bonds primarily as an investment.

If you're building an emergency fund and/or shorter term savings like a down payment fund, however, I would still direct money into I Bonds, because of their rock solid insurance against loss of principal coupled with (for now, at least) a guaranteed short-term return well above what you could otherwise get from a high yield savings account or CD.

If you end up not needing the money in the short term after all, those I Bonds can shift automatically into a strategic long-term inflation-protected bond holding as part of a responsible AA going forward, especially if you start buying them early enough not to be bottlenecked by the purchase limits.
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Re: What's the catch with I Bonds?

Post by Whakamole »

MishkaWorries wrote: Thu Jun 03, 2021 12:00 pm
vineviz wrote: Thu Jun 03, 2021 11:29 am
MishkaWorries wrote: Thu Jun 03, 2021 11:10 am
UpperNwGuy wrote: Thu Jun 03, 2021 8:01 am
nisiprius wrote: Thu Jun 03, 2021 6:54 am So I am going to present an hypothesis. If government debt is truly a serious problem, I would predict that there will be a renaissance of the savings bond program, with the purchase limits being increased the government again promoting the program in advertising... and that the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government.
There's the catch: current rates are favorable to the purchaser and not favorable to the government. Sooner or later, that will change.
I'm lost.

The current fixed rate for an I-bond is 0% plus the official government inflation rate. How can it get more favorable for the government? Unless the fudge the inflation numbers or discontinue I-bonds. Maybe you guys are just talking about government bonds other than I-bonds.
The rate on Series I savings bonds is less favorable to the government than the rate on other securities with similar characteristics.
As to I-bonds, I'm still not understanding the risk or catch of "the rates will be adjusted so that they are less favorable to borrowers and more favorable to the government." What can the government do?
The inflation rate on the I-bonds you purchase may not match the inflation rate you are experiencing. An example: inflation is officially low right now, but food prices have gone up (impacting everyone), lumber prices have gone up, home prices have gone up, etc. Goods like televisions may be cheaper, but how often do you buy a television?

I am invested in I-Bonds (~20% of my bond portfolio), and they are paying more than the rest of my bond portfolio. Still, I barely view them as ballast, since they are gradually sinking in value. More like a leaky raft.
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Re: What's the catch with I Bonds?

Post by anon_investor »

livesoft wrote: Fri Jun 04, 2021 8:40 am
Mel Lindauer wrote: Thu Jun 03, 2021 5:35 pmAnd, as has been correctly pointed out to those who criticize the "low" $10k per person annual purchase limit (perhaps $25K or more per couple), it's still higher than the annual IRA contribution limits of 6K or 7K. And nothing says you can't do both.

Slow and steady wins the race.
I wanted to point out that perhaps only the wealthy or high income folks can contribute to the limits of their 401(k), 403(b), Roth or traditional IRA, and still have money left over to buy I-bonds. And if the choice is between an IRA (of either kind) and I-bonds, then I would hope that most people do not choose I-bonds since the IRAs would allow for bonds and equities and rebalancing while I-bonds are just bonds. And would folks really want to buy I-bonds before contributing to their 401(k)?
"Wealthy or high income folks" make up a decent amount of people on BH. I think that is why there is the sudden increase in interest in I Bonds on BH. Personally, I have been moving EF funds from expiring CDs into I Bonds since last year. But even once I move all my expiring CD funds to I Bonds, there is a good chance that I will continue to buy them (maybe not the max of $20k+5k/yr for a married couple though), especially since I am already maxing out all tax advantaged accounts and already investing heavily in a taxable account.
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