[Should I move money from Intermediate Term Bond Index to I-Bonds?]

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BrokerageZelda
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Re: I-Bonds

Post by BrokerageZelda »

stocknoob4111 wrote: Thu Jan 13, 2022 1:05 pm
HueyLD wrote: Thu Jan 13, 2022 10:39 am Look for composite rates near the bottom.

https://www.treasurydirect.gov/indiv/re ... dterms.htm
thanks, the composite rates don't match the fixed+inflation, for instance the composite for Sep. 1998 is listed as 10.64% and for that same month fixed was 3.40% and inflation was 0.62% so composite should've been 4.02%, what am I missing?
The inflation rate of "now" is added to (slightly more complicated than that but adding gets you close) the fixed rate of "back then" (subject to the 6 month cycle). So you check the fixed rate of the month of issue and the present inflation rate to see what the bond is earning now.
Last edited by BrokerageZelda on Thu Jan 13, 2022 1:28 pm, edited 1 time in total.
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Re: I-Bonds

Post by dbr »

stocknoob4111 wrote: Thu Jan 13, 2022 1:05 pm
HueyLD wrote: Thu Jan 13, 2022 10:39 am Look for composite rates near the bottom.

https://www.treasurydirect.gov/indiv/re ... dterms.htm
thanks, the composite rates don't match the fixed+inflation, for instance the composite for Sep. 1998 is listed as 10.64% and for that same month fixed was 3.40% and inflation was 0.62% so composite should've been 4.02%, what am I missing?
It may be monthly increase and annualized rate are being confused. Also annualized rate for a monthly increase is not the same as the inflation for a year.
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stocknoob4111
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Re: I-Bonds

Post by stocknoob4111 »

BrokerageZelda wrote: Thu Jan 13, 2022 1:23 pm The inflation rate of "now" is added to (slightly more complicated than that but adding gets you close) the fixed rate of "back then" (subject to the 6 month cycle). So you check the fixed rate of the month of issue and the present inflation rate to see what the bond is earning now.
ah ok, I get it now, however I was actually looking at what the bond would've been yielding at that time with the historical inflation and fixed rate, i.e. I wanted to compare how I-Bonds were doing at some point in history compared with other fixed income.
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Re: I-Bonds

Post by BrokerageZelda »

stocknoob4111 wrote: Thu Jan 13, 2022 3:15 pm
BrokerageZelda wrote: Thu Jan 13, 2022 1:23 pm The inflation rate of "now" is added to (slightly more complicated than that but adding gets you close) the fixed rate of "back then" (subject to the 6 month cycle). So you check the fixed rate of the month of issue and the present inflation rate to see what the bond is earning now.
ah ok, I get it now, however I was actually looking at what the bond would've been yielding at that time with the historical inflation and fixed rate, i.e. I wanted to compare how I-Bonds were doing at some point in history compared with other fixed income.
The link under "What have rates been in the past?"
https://www.treasurydirect.gov/indiv/re ... eChart.pdf

goes to a PDF table showing the historical composite rates that every I Bond actually earned in every 6-month period since its date of issue. Sounds like that is what you're looking for.
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Re: I-Bonds

Post by stocknoob4111 »

BrokerageZelda wrote: Thu Jan 13, 2022 3:20 pm Sounds like that is what you're looking for.
yep, exactly this, thank you very much!!! :D
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Re: I-Bonds

Post by friar1610 »

ivgrivchuck wrote: Thu Jan 13, 2022 12:58 pm
friar1610 wrote: Thu Jan 13, 2022 12:27 pm Something I’ve never understood….when it comes to stocks everyone talks about diversification. An index with 5000 stocks is better than 500. Holding international at some level is better than domestic only. Etc., etc. But with bonds the questions are often along the lines of bond MF OR I-Bonds? Treasury OR corporate? Intermediate term OR long term? Why not think of “bonds” as “fixed income” and spread the money around a bit. A core bond mutual fund. A stack of I- or EE-bonds (or both)? Some CDs? Maybe a MYGA? They’re all fixed income yet each has characteristics that differentiate (and diversify) them from the others. At any given time one will probably be doing your overall portfolio more good than the others. Since you can’t predict the best performer for a given situation in advance, why not cover as many fixed income bases as you can? To my mind, some number of I-Bonds fit perfectly into such a world view.
There are very good reasons for that:
- Publicly traded stocks are fairly valued (at least most of them, most of the time), investing in them requires a long time horizon (10+ years). Market price finding works, diversification is a no-brainer.

- Many fixed income assets (I-bonds, EE-bonds, MYGAs, non-brokered CDs) cannot be traded in secondary markets. Price finding doesn't work. There are "free lunches" for retail investors. For example if I-bonds were available for institutional investors, we would immediately see hundreds of billions flowing into them.

- If you need to choose between $100k into one CD with 3% interest OR ($50k into a CD with 3% interest and $50k into a CD with 2% interest), are you really better off by splitting your money?


Depends. If the 3% were, say, 4 years and the 2% were 2 year and I thought interest rates were on an upward trend I might want to hedge my bets. But your example isn’t really what I was talking about. This is what I meant - I might want some of the $100K in an I-Bond/TIPS (to provide some inflation protection), some of it in a CD (for the safety of an FDIC guarantee and relative liquidity) and the remainder in a core bond fund that represents the overall bond market and is highly liquid. There are other variations that might appeal to others (but not to me): a junk bond fund for potential greater yield (albeit at higher risk), a MYGA for higher liquidity at slightly greater risk than a CD but with less liquidity, etc. Youcan roll your own depending on what you’re looking for in fixed income. Just no need to put every egg in the same basket and perhaps some advatage in not doing so.
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Re: I-Bonds

Post by ivgrivchuck »

friar1610 wrote: Thu Jan 13, 2022 4:51 pm Depends. If the 3% were, say, 4 years and the 2% were 2 year and I thought interest rates were on an upward trend I might want to hedge my bets. But your example isn’t really what I was talking about. This is what I meant - I might want some of the $100K in an I-Bond/TIPS (to provide some inflation protection), some of it in a CD (for the safety of an FDIC guarantee and relative liquidity) and the remainder in a core bond fund that represents the overall bond market and is highly liquid. There are other variations that might appeal to others (but not to me): a junk bond fund for potential greater yield (albeit at higher risk), a MYGA for higher liquidity at slightly greater risk than a CD but with less liquidity, etc. Youcan roll your own depending on what you’re looking for in fixed income. Just no need to put every egg in the same basket and perhaps some advatage in not doing so.
Sure, I do understand what you mean.

What I was trying to so is:
- Because stocks are so risky, diversification is essential.
- However there are some fixed income assets that are considered 100% safe (well, nothing is 100% safe in this World, but...). If such an asset pays better than any other available fixed income asset, it is fully justifiable to put all "bond money" into such an asset. So diversification is not essential.
- However in some cases diversification in fixed income might have its benefits too...
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Re: I-Bonds

Post by friar1610 »

ivgrivchuck wrote: Thu Jan 13, 2022 5:07 pm
friar1610 wrote: Thu Jan 13, 2022 4:51 pm Depends. If the 3% were, say, 4 years and the 2% were 2 year and I thought interest rates were on an upward trend I might want to hedge my bets. But your example isn’t really what I was talking about. This is what I meant - I might want some of the $100K in an I-Bond/TIPS (to provide some inflation protection), some of it in a CD (for the safety of an FDIC guarantee and relative liquidity) and the remainder in a core bond fund that represents the overall bond market and is highly liquid. There are other variations that might appeal to others (but not to me): a junk bond fund for potential greater yield (albeit at higher risk), a MYGA for higher liquidity at slightly greater risk than a CD but with less liquidity, etc. Youcan roll your own depending on what you’re looking for in fixed income. Just no need to put every egg in the same basket and perhaps some advatage in not doing so.
Sure, I do understand what you mean.

What I was trying to so is:
- Because stocks are so risky, diversification is essential.
- However there are some fixed income assets that are considered 100% safe (well, nothing is 100% safe in this World, but...). If such an asset pays better than any other available fixed income asset, it is fully justifiable to put all "bond money" into such an asset. So diversification is not essential.
- However in some cases diversification in fixed income might have its benefits too...
:thumbsup
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Re: I-Bonds

Post by TropikThunder »

poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
Wait, are you saying if rates go down I won't be able to sell my I Bonds and buy something else? Geez I didn't think of that. We should all have just left our money in online savings accounts earning 0.5%. I feel stupid now.
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Re: I-Bonds

Post by Grt2bOutdoors »

TropikThunder wrote: Thu Jan 13, 2022 5:34 pm
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
Wait, are you saying if rates go down I won't be able to sell my I Bonds and buy something else? Geez I didn't think of that. We should all have just left our money in online savings accounts earning 0.5%. I feel stupid now.
You are being facetious right? Of course you can redeem them, but only after a minimum 1 year holding period from month of original purchase.
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Re: I-Bonds

Post by Vulcan »

ivgrivchuck wrote: Thu Jan 13, 2022 10:51 am
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
If the time comes where VGIT clearly beats I-bonds (required margin around: 0.5%-0.8%), then I'm going to sell the i-bonds and either buy VGIT or some mid-term TIPS fund.
I regret having ever sold my I Bonds. Even the ones with zero fixed interest.
If you torture the data long enough, it will confess to anything. ~Ronald Coase
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Re: I-Bonds

Post by TropikThunder »

Grt2bOutdoors wrote: Thu Jan 13, 2022 5:38 pm
TropikThunder wrote: Thu Jan 13, 2022 5:34 pm
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
Wait, are you saying if rates go down I won't be able to sell my I Bonds and buy something else? Geez I didn't think of that. We should all have just left our money in online savings accounts earning 0.5%. I feel stupid now.
You are being facetious right? Of course you can redeem them, but only after a minimum 1 year holding period from month of original purchase.
Totally being facetious. Just responding to an unrealistic criticism. :P
Them: "Sure they earn 7% now. What are you gonna do Mr. Smartypants when they go back to 1%?!?"
Me: "Buy something else?"
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Re: I-Bonds

Post by nukephd »

I'm really wishing I would have bought 20k in I-bonds two weeks ago and 20k this week instead of dropping 60k in excess cash into VTSAX. Seriously regret. Oh well. I just have to think longer term with that money.
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Re: I-Bonds

Post by AlphaLess »

ClassOf2021 wrote: Wed Jan 12, 2022 7:33 pm I started investing in i bonds in 2021 and think there is a strong case for them now. Main drawback for me is the limit in investment size, which makes i bonds not very material for my portfolio (they are less than a percent of total portfolio).

I also increased my investment in a stable-value-like fund in my 401k over the last year which pays 3% with a fixed value of $1/share. The limit on this investment is the size of my 401k, and it is about 25% of my overall portfolio. If you have a fund like this in a 401k, it could be useful now.

I also recently shifted 300k from total bond to tips, but I would prioritize ibonds over tips.
I also used to think this way, but it is possible to build an I-bond portfolio.
Assume two people.
Assume $10K investment per person per year.
I-bonds are good for 30 years.

Once you build up, which will take 30 years, that is $600K just in invested capital. Assume 2.5% average inflation, and those bonds close to maturity will be worth 2x their invested capital. So the total should be closer to $900K.

With an 8-figure total portfolio, this would be a single-digit percent, but still, not too bad.

Could also through in some money into EE bonds. Similar analysis, lower-ish return, but 20-year horizon:
2 * $10 * 20 = $400 -> Times 1.5 = $600K.
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Re: I-Bonds

Post by comeinvest »

ivgrivchuck wrote: Thu Jan 13, 2022 10:51 am
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
If the time comes where VGIT clearly beats I-bonds (required margin around: 0.5%-0.8%), then I'm going to sell the i-bonds and either buy VGIT or some mid-term TIPS fund.
I didn't do my own backtesting, but I read on another thread that historically, I-Bonds' fixed return component, when not at the 0% floor, is typically similar to the real return of 5-10 year treasuries. That would kind of make sense based on a no-arbitrage argument from the treasury's point of view, if we assume that the average holding time of I-Bonds before investors cash in, is in that range.

If true, then how could it be that VGIT ever beats I-Bonds based on expected return to maturity a.k.a. portfolio YTM? If above is true, then I-Bonds would appear to be always equal (when real rates are zero or positive) or better (due to the 0% floor of I-Bonds, when real rates are negative) than intermediate treasuries, or not?
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Re: I-Bonds

Post by ivgrivchuck »

comeinvest wrote: Thu Jan 13, 2022 7:07 pm
ivgrivchuck wrote: Thu Jan 13, 2022 10:51 am
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
If the time comes where VGIT clearly beats I-bonds (required margin around: 0.5%-0.8%), then I'm going to sell the i-bonds and either buy VGIT or some mid-term TIPS fund.
I didn't do my own backtesting, but I read on another thread that historically, I-Bonds' fixed return component, when not at the 0% floor, is typically similar to the real return of 5-10 year treasuries. That would kind of make sense based on a no-arbitrage argument from the treasury's point of view, if we assume that the average holding time of I-Bonds before investors cash in, is in that range.

If true, then how could it be that VGIT ever beats I-Bonds based on expected return to maturity a.k.a. portfolio YTM? If above is true, then I-Bonds would appear to be always equal (when real rates are zero or positive) or better (due to the 0% floor of I-Bonds, when real rates are negative) than intermediate treasuries, or not?
Well, the Treasury hasn't published any algorithm on how they set the fixed rate. So what has happened in the past is of no guarantee of what will happen in the future... But sure, if they keep doing of what they've been doing, then there is no need to buy VGIT instead of i-bonds. However it may make sense to sell old 0% fixed rate bonds and replace them either with new i-bonds (or with something else if the purchase limit is a problem...)
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Re: I-Bonds

Post by smectym »

HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
No, it doesn’t make much difference. My suggestion is to just pull the trigger and buy, then you have one less thing to worry about.
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Re: I-Bonds

Post by Mel Lindauer »

smectym wrote: Thu Jan 13, 2022 9:36 pm
HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
No, it doesn’t make much difference. My suggestion is to just pull the trigger and buy, then you have one less thing to worry about.
IMO, there's no reason to wait. Buy now and lock in the great 7.12% for the next six months. And the way the inflation numbers are coming in, it looks like the second six months you'd get could be a big number, too.
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Re: I-Bonds

Post by anon_investor »

Mel Lindauer wrote: Thu Jan 13, 2022 9:53 pm
smectym wrote: Thu Jan 13, 2022 9:36 pm
HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
No, it doesn’t make much difference. My suggestion is to just pull the trigger and buy, then you have one less thing to worry about.
IMO, there's no reason to wait. Buy now and lock in the great 7.12% for the next six months. And the way the inflation numbers are coming in, it looks like the second six months you'd get could be a big number, too.
The variable rate for I Bonds was only 1.06% then 1.68% not so long ago, 7.12% is crazy! I agree, no reason not to buy right away!
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Re: I-Bonds

Post by doingwell »

Mel Lindauer wrote: Thu Jan 13, 2022 9:53 pm
smectym wrote: Thu Jan 13, 2022 9:36 pm
HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
No, it doesn’t make much difference. My suggestion is to just pull the trigger and buy, then you have one less thing to worry about.
IMO, there's no reason to wait. Buy now and lock in the great 7.12% for the next six months. And the way the inflation numbers are coming in, it looks like the second six months you'd get could be a big number, too.
With the numbers that are currently in for the next rate adjustment on May 1, it looks like the composite rate will likely come down a bit. The first 3 months (Oct thru Dec 2021) of the six month period showed an annualized CPI-U increase of 6.55%. That is a big value relative to recent I-Bond inflation rates but still less than the 7.12% for the prior 6 months. Even if inflation vanished for the next three months, we’d still see a 3.27% rate, which is good by recent historical standards! I’m definitely in the buy now camp, too.
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Re: I-Bonds

Post by LeftCoastIV »

Alto Astral wrote: Wed Jan 12, 2022 7:41 pm Do it. I can't get money fast enough into it. We do 20k each year. I even opened 2 trusts in our names to contribute another 20k/y
Curious what your plan is for the trust accounts. Keep buying over x years and then terminate the trusts (assuming they are revocable trusts) and consolidate all the ibonds into your personal treasurydirect accounts?
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Re: I-Bonds

Post by dbr »

LeftCoastIV wrote: Sat Jan 22, 2022 12:56 pm
Alto Astral wrote: Wed Jan 12, 2022 7:41 pm Do it. I can't get money fast enough into it. We do 20k each year. I even opened 2 trusts in our names to contribute another 20k/y
Curious what your plan is for the trust accounts. Keep buying over x years and then terminate the trusts (assuming they are revocable trusts) and consolidate all the ibonds into your personal treasurydirect accounts?
Someone needs to find out if the ownership of an I bond can changed other than to a beneficiary or co-owner on the death of an owner. I am not sure how a revocable trust can be murdered.
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Re: I-Bonds

Post by tipswatcher »

Whakamole wrote: Thu Jan 13, 2022 11:04 am
poker27 wrote: Wed Jan 12, 2022 10:59 pm Very recently IBonds we’re paying 1.x%. What are the new IBonds gurus going to do when that comes back around?
I'm an old guru, but - hold onto them. They're a combination bond allocation and tax-deferred emergency fund. The times when interest rates have been low, interest rates in online banks has been lower (excepting gimmicks like high interest rates on a few thousand dollars.)

I also prefer low inflation to high inflation, even holding I-bonds, since that will save me money on tax when these are eventually cashed in.
You're a wise old guru. Because of the per-year purchase limit, it takes years to build up a sizable allocation in I Bonds. So ... just buy them every year, even when the fixed rate is 0.0%, until you get to the desired allocation. When the fixed rate is 0.0%, they will provide a return equal to future U.S. inflation. Right now, that is impossible to find in any other very safe investment. If inflation drops to 1% for a year, you'll earn 1%. If inflation falls to -1% for a year, you will earn 0.0%, beating inflation. But our current situation, with inflation soaring to 7.0%, demonstrates the reason to build a stockpile of I Bonds, for these moments.

We definitely don't cheer for higher inflation. We just want to survive it.
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Re: I-Bonds

Post by martincmartin »

How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
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Re: I-Bonds

Post by dbr »

martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
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Re: I-Bonds

Post by Alto Astral »

LeftCoastIV wrote: Sat Jan 22, 2022 12:56 pm
Alto Astral wrote: Wed Jan 12, 2022 7:41 pm Do it. I can't get money fast enough into it. We do 20k each year. I even opened 2 trusts in our names to contribute another 20k/y
Curious what your plan is for the trust accounts. Keep buying over x years and then terminate the trusts (assuming they are revocable trusts) and consolidate all the ibonds into your personal treasurydirect accounts?
We are each the trust's beneficiary. When I redeem the i bonds, I plan to deposit into my checking account. I don't need to do anything with the trust. They can stay as-is as the purpose was to only buy the i bonds.
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Re: I-Bonds

Post by Whakamole »

dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I-bonds are tax-deferred. They have a mandatory date when they must be cashed in, unlike an IRA, but they are still tax-deferred.

That is one of their appeals - they expand tax-deferred space.
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Re: I-Bonds

Post by dbr »

Whakamole wrote: Sat Jan 22, 2022 3:28 pm
dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I-bonds are tax-deferred. They have a mandatory date when they must be cashed in, unlike an IRA, but they are still tax-deferred.

That is one of their appeals - they expand tax-deferred space.
No, no, no, the principle used to make the purchase has to be after tax money. What is deferred with an I bond is the interest. An IRA or 401k allows you to deposit salary without paying tax on it the year earned. It would be fair to say an I bond is like a Roth IRA. Whether or not to prefer investing in a Roth rather than a "traditional" tax deferred account is a tax calculation. A person for whom the answer to that comes out that a trad IRA or 401k is the best option is going to have to give up on directing that money to I bonds. Someone already maxed on true tax deferred investments who has still more money to put away can certainly do that in I bonds, just as they can choose a Roth over a Trad IRA or buy tax exempt bonds. In doing this it is important to recognize that capital gains on stocks are a much bigger tax deferred holding and may even become tax free with basis step-up. The same investors that are maxing 401K's, if they have extra savings, would probably prefer stocks to I bonds. Also, stock dividends, are qualified and at a lower rate than bond interest. In fact, an issue with the tax deferment of I bond interest is that at 30 years or when the bond is sold the whole thing comes due in one fell swoop.
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Re: I-Bonds

Post by BrokerageZelda »

dbr wrote: Sat Jan 22, 2022 3:33 pm
Whakamole wrote: Sat Jan 22, 2022 3:28 pm
dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I-bonds are tax-deferred. They have a mandatory date when they must be cashed in, unlike an IRA, but they are still tax-deferred.

That is one of their appeals - they expand tax-deferred space.
No, no, no, the principle used to make the purchase has to be after tax money. What is deferred with an I bond is the interest. An IRA or 401k allows you to deposit salary without paying tax on it the year earned. It would be fair to say an I bond is like a Roth IRA.
An I Bond is not like a Roth IRA, where growth happens tax free. It is most like a non-deductible traditional IRA (or an after-tax 401k), where there is a basis made of already-taxed dollars, and the growth on that basis is tax-deferred until distribution.
dbr
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Re: I-Bonds

Post by dbr »

BrokerageZelda wrote: Sat Jan 22, 2022 3:40 pm
dbr wrote: Sat Jan 22, 2022 3:33 pm
Whakamole wrote: Sat Jan 22, 2022 3:28 pm
dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I-bonds are tax-deferred. They have a mandatory date when they must be cashed in, unlike an IRA, but they are still tax-deferred.

That is one of their appeals - they expand tax-deferred space.
No, no, no, the principle used to make the purchase has to be after tax money. What is deferred with an I bond is the interest. An IRA or 401k allows you to deposit salary without paying tax on it the year earned. It would be fair to say an I bond is like a Roth IRA.
An I Bond is not like a Roth IRA, where growth happens tax free. It is most like a non-deductible traditional IRA (or an after-tax 401k), where there is a basis made of already-taxed dollars, and the growth on that basis is tax-deferred until distribution.
Correct. I misspoke a little there.
m0derton
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Re: I-Bonds

Post by m0derton »

dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I started converting some of my emergency fund over to I bonds last year. I have enough other cash sitting around for monthly cash flow purposes, but the rest is pretty much all invested. How are you all typically funding your annual contributions? Take a chunk out of your emergency fund, tax gain/loss harvest equities in a taxable account, accumulate cash over the year, sell a bond fund, etc?
LeftCoastIV
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Re: I-Bonds

Post by LeftCoastIV »

m0derton wrote: Sun Jan 23, 2022 7:33 am
dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I started converting some of my emergency fund over to I bonds last year. I have enough other cash sitting around for monthly cash flow purposes, but the rest is pretty much all invested. How are you all typically funding your annual contributions? Take a chunk out of your emergency fund, tax gain/loss harvest equities in a taxable account, accumulate cash over the year, sell a bond fund, etc?
We fund from lower yielding cash accounts.
dbr
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Re: I-Bonds

Post by dbr »

m0derton wrote: Sun Jan 23, 2022 7:33 am
dbr wrote: Sat Jan 22, 2022 3:20 pm
martincmartin wrote: Sat Jan 22, 2022 3:17 pm How do you rebalance with I-Bonds? Or do you have other fixed income that you'd use for rebalancing?
You don't, or that is to say you have other fixed income. It would be really unusual for all of one's fixed income to be I bonds. A huge reason for that is that I bonds can't be held in tax deferred accounts and yet your tax deferred accounts are the normal location for fixed income.
I started converting some of my emergency fund over to I bonds last year. I have enough other cash sitting around for monthly cash flow purposes, but the rest is pretty much all invested. How are you all typically funding your annual contributions? Take a chunk out of your emergency fund, tax gain/loss harvest equities in a taxable account, accumulate cash over the year, sell a bond fund, etc?
The "normal" employed person diverts monthly paychecks to a 401k and/or a little bit to a Roth IRA. People with individual 401k, SEP, etc. might manage things differently. I am not sure what the question is. People's financial situations are all so different there probably is no one single process people are engaged in. I'm retired so I make a negative contribution of my 401k RMD at the end of every year, have my taxes for the year withheld and put the remainder in my checking account. I bonds never made any particular sense to us compared to alternatives and still don't. Our holdings in taxable accounts are almost entirely stocks which at the moment are hovering above their target level, but this could change if the market corrects for awhile.
Babytaylor
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Re: I-Bonds

Post by Babytaylor »

Does anyone know if we will get a year-end statement from the Treasury about our I-Bonds?
We purchased some in 2021 & just purchased some for 2022.
One of the things that makes me nervous is there is no paperwork (I did print a screen shot)..
If something should happen to me in the future, I am afraid the I-Bonds will get lost in the shuffle
dbr
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Re: I-Bonds

Post by dbr »

Babytaylor wrote: Sun Jan 23, 2022 9:18 am Does anyone know if we will get a year-end statement from the Treasury about our I-Bonds?
We purchased some in 2021 & just purchased some for 2022.
One of the things that makes me nervous is there is no paperwork (I did print a screen shot)..
If something should happen to me in the future, I am afraid the I-Bonds will get lost in the shuffle
I don't know about statements issued, but certainly holding individual bonds at TD is an extra account that might be more complex for an executor or heirs to manage when a person passes. I certainly count that as a reason to not hold such an account. At least with clear-cut beneficiaries and administration in place a 401k plan and a brokerage account with TOD and prior access by granting authorization on the account is easier for a spouse or children to navigate later. Bonds at TD also require attention when the bonds mature while funds held in 401k or brokerage accounts don't have time lines on them. A TD "horror story" is a person I know who, back in the old days, stopped sending in renewal forms for T-bills due to dementia. The bank finally notified someone when they noticed the checking account had bloomed to half a million dollars in holding due to T-bills not being renewed and being deposited in checking instead. At least paying the rent still worked ok.
BrokerageZelda
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Re: I-Bonds

Post by BrokerageZelda »

Babytaylor wrote: Sun Jan 23, 2022 9:18 am Does anyone know if we will get a year-end statement from the Treasury about our I-Bonds?
We purchased some in 2021 & just purchased some for 2022.
One of the things that makes me nervous is there is no paperwork (I did print a screen shot)..
If something should happen to me in the future, I am afraid the I-Bonds will get lost in the shuffle
TreasuryDirect does not issue paper statements, only electronic 1099s and online savings bond lists that you can print.

Most of my financial accounts are set to electronic statements only, so this is no different. As with any other bank or investment account with electronic statements, keep at least enough paper records that your heirs know the account exists, and the information needed to make a claim (account number, contact info for customer service).
GetSmarter
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Re: I-Bonds

Post by GetSmarter »

HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
Do it now
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Grt2bOutdoors
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Re: I-Bonds

Post by Grt2bOutdoors »

GetSmarter wrote: Sun Jan 23, 2022 6:39 pm
HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
Do it now
If anyone is thinking there will be a positive fixed rate announced in May, I would say forget about it. There is absolutely no rational reason why the Treasury needs to offer a positive fixed rate when current TIPS at new issue are trading with negative real rates. https://www.treasury.gov/resource-cente ... =realyield

Buy your I bonds now. If you wait for after April or later, you will lose the 7.12% semi-annual rate. The idea of getting a positive fixed rate that even if it were in the 10bp to 50bp range, it likely still would not make up for the loss of a 3.54% annual (7.12*.50) rate earned over the first 6 months of the I bond in 2022. Take the bird in hand.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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HueyLD
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Re: I-Bonds

Post by HueyLD »

Grt2bOutdoors wrote: Sun Jan 23, 2022 7:51 pm
GetSmarter wrote: Sun Jan 23, 2022 6:39 pm
HonoluluGator wrote: Wed Jan 12, 2022 8:44 pm So confused… buy now or wait to see new rates in April (or October)? Or does it make much difference?
Do it now
If anyone is thinking there will be a positive fixed rate announced in May, I would say forget about it. There is absolutely no rational reason why the Treasury needs to offer a positive fixed rate when current TIPS at new issue are trading with negative real rates. https://www.treasury.gov/resource-cente ... =realyield

Buy your I bonds now. If you wait for after April or later, you will lose the 7.12% semi-annual rate. The idea of getting a positive fixed rate that even if it were in the 10bp to 50bp range, it likely still would not make up for the loss of a 3.54% annual (7.12*.50) rate earned over the first 6 months of the I bond in 2022. Take the bird in hand.
+100!!!
GetSmarter
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by GetSmarter »

I heard conflicting information about whether a person can have two treasury direct accounts in order to buy i-bonds; one as an individual, the other as the same individual's trust. Same social security number. The conflicting information came from two different people I spoke to at treasurydirect. Thoughts?
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
evelynmanley
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by evelynmanley »

GetSmarter wrote: Tue Jan 25, 2022 3:48 pm I heard conflicting information about whether a person can have two treasury direct accounts in order to buy i-bonds; one as an individual, the other as the same individual's trust. Same social security number. The conflicting information came from two different people I spoke to at treasurydirect. Thoughts?
This article addresses your questions:

https://thefinancebuff.com/how-to-buy-i-bonds.html
GetSmarter
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by GetSmarter »

Thanks
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stocknoob4111
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by stocknoob4111 »

Bought a couple thousand worth of I-Bonds on Jan 26, I should've got interest deposited for the entire month of Jan but today I logged in and don't see any interest anywhere on the website, it just says Series I and my initial dollar amount, I navigate all over the site and nothing... where do I see the interest transaction? Perhaps I am missing it.
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stocknoob4111
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by stocknoob4111 »

thanks, so I have to use the calculator then to see what the interest is going to be and wait 6 months for the principal value to change.
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FoundingFather
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by FoundingFather »

stocknoob4111 wrote: Tue Feb 08, 2022 7:59 pm thanks, so I have to use the calculator then to see what the interest is going to be and wait 6 months for the principal value to change.
Since there is a 3 month interest penalty for redemption before 5 years of holding, you will not see any increase in your I bond value for the first 3 months. After that you will see a monthly increase in their value when you log into your treasury direct account. If you hold them for 5 years, you will basically get 4 months of interest the month that you cross over that threshold (the monthly increase you would normally see and the 3 months that was missed at the beginning).

Compounding is every 6 months, but you do earn interest monthly.

Founding Father
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GP813
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Re: [Should I move money from Intermediate Term Bond Index to I-Bonds?]

Post by GP813 »

stocknoob4111 wrote: Tue Feb 08, 2022 7:59 pm thanks, so I have to use the calculator then to see what the interest is going to be and wait 6 months for the principal value to change.
Some users on here like this resource for a quick reference. You change the denomination(total) of your I bond and then click the month you purchased to see the rate and interest per month.

https://eyebonds.info/ibonds/home10000.html
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