Bonds Don't Make Any Sense Right Now
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Bonds Don't Make Any Sense Right Now
With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
Re: Bonds Don't Make Any Sense Right Now
Agreed. So do Warren Buffett, Ray Dalio, Bill Miller and other successful investors.
Re: Bonds Don't Make Any Sense Right Now
Where can I buy a million dollars worth of I-bonds right now?
Re: Bonds Don't Make Any Sense Right Now
for the same reason equities made sense at all time historical p/e ratio's. because they have a place in your asset allocation.. the only question for me is duration, not allocation. our bond duration is 2 years and some of it is non-dollar. more concerned about equity valuations quite honestly.
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Re: Bonds Don't Make Any Sense Right Now
Around half of my fixed income is in stable value which is returning about 1.8% currently which has little risk to the principal with the rest in bond index fund.
Re: Bonds Don't Make Any Sense Right Now
Treasury prices rise in crisis/corrections. Cash doesn’t
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Re: Bonds Don't Make Any Sense Right Now
+1. Essentially same here. 35% Stable Value fund, 65% short/intermediate term bond index fund.placeholder wrote: ↑Sun Jan 23, 2022 10:07 pm Around half of my fixed income is in stable value which is returning about 1.8% currently which has little risk to the principal with the rest in bond index fund.
An important key to investing is having a well-calibrated sense of your future regret.
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Re: Bonds Don't Make Any Sense Right Now
Can we look back in history and see when it was a good time to lock up money for 10 years? That is, what data do we use to figure out that yes, NOW we can lock this money up and it's a good idea vs NO it's not a good idea right now?throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Re: Bonds Don't Make Any Sense Right Now
My BIL (bank president) has a motto: "Don't bring me a problem without a solution."throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
I think it's a silly motto. But it might be useful here.
There are no "solutions", only trade offs.
I think if you listed your proposed solutions, you would immediately see that they came with their own set of unattractive qualities.
Being least ugly will is sometimes the best you can do.
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Re: Bonds Don't Make Any Sense Right Now
Don't you need to know the outcome of inflation for the next 10 years to make that claim?throw123112 wrote: ... why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period.
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Re: Bonds Don't Make Any Sense Right Now
Yes, Bonds don't make any sense right now. Equities, don't really make any sense right now... Crypto--- doesn't make any sense right now. Honestly, unless you're retired, bonds end up adding to force multiplied risk because the markets (equities / bonds / commodities etc.) are no longer following any type of rational pattern or relationship. Even having said that, I'm half expecting someone to come in here and pipe up with "But--- but--- This time its different!" Which, I suppose it is, but why and how? Either way, I take solace in the fact that bonds round out a portfolio of investments that are 10,15,20+ year horizons of which, who cares if bonds don't make any sense now-- they might make sense later. The question is are you willing to bet that not having bonds will help you or hurt you?
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Re: Bonds Don't Make Any Sense Right Now
Yeah, I've been wondering how to move half million bonds in my IRA to I-Bonds with amazing 7% rate, the minute I figure that out will have an answer for you. Until then guess I'll have to hold Treasuries and TIPS.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
Re: Bonds Don't Make Any Sense Right Now
All the negative sentiment is a good sign for bonds continuing to soar.
Re: Bonds Don't Make Any Sense Right Now
Bonds don’t make sense until stocks sell off 40%. Than the real return of -5% for bonds looks real good.
Re: Bonds Don't Make Any Sense Right Now
and that isn't even a particularly large holding.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
Re: Bonds Don't Make Any Sense Right Now
I once won a sailboat race because we were the first boat to toss out the anchor.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Bonds Don't Make Any Sense Right Now
Re: Bonds Don't Make Any Sense Right Now
Sign me up to.
I don't carry a signature because people are easily offended.
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Re: Bonds Don't Make Any Sense Right Now
I'm not sure that I follow. By this logic, the S&P 500 has a real earnings yield of -3%, despite a YTD return of -10%. I don't know if bonds are a good buy today, but to those who say they don't make sense, well, I would ask how much sense the alternatives make.
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Re: Bonds Don't Make Any Sense Right Now
I don't think that any investors 'love' the negative real yields of bonds right now. But what's the alternative? Going 100% stock? That may be fine for an accumulator with a decade or longer to go before retiring, but that's unlikely to serve retirees and those soon to be so very well.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
The Sensible Steward
Re: Bonds Don't Make Any Sense Right Now
or those prone to panic.willthrill81 wrote: ↑Mon Jan 24, 2022 12:22 pm I don't think that any investors 'love' the negative real yields of bonds right now. But what's the alternative? Going 100% stock? That may be fine for an accumulator with a decade or longer to go before retiring, but that's unlikely to serve retirees and those soon to be so very well.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Re: Bonds Don't Make Any Sense Right Now
It's arguable whether such people should own stocks at all.jebmke wrote: ↑Mon Jan 24, 2022 12:23 pmor those prone to panic.willthrill81 wrote: ↑Mon Jan 24, 2022 12:22 pm I don't think that any investors 'love' the negative real yields of bonds right now. But what's the alternative? Going 100% stock? That may be fine for an accumulator with a decade or longer to go before retiring, but that's unlikely to serve retirees and those soon to be so very well.
The Sensible Steward
Re: Bonds Don't Make Any Sense Right Now
I use my bond allocation for stability in the portfolio. And for rebalancing. like today, as equities drop, sell bond funds, to buy equities "low". Sell equities "high" roll into bond funds. Rinse and repeat.
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Re: Bonds Don't Make Any Sense Right Now
Rebalancing is only a risk mitigation strategy. It does not have a mathematically driven expectation for higher returns.
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Re: Bonds Don't Make Any Sense Right Now
Likely, but not guaranteed. Hedge inflation according to the needs of your portfolio; most high stock holders usually do not need inflation hedged bonds. Who cares if you get -2% real return if it is tiny to the risk of stocks. The high fixed income crowd usually do need to worry because high inflation is then a true problem for such a portfolio.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
But yes, I-bonds are a very good deal in general as a low-risk investment.
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Re: Bonds Don't Make Any Sense Right Now
Right. That is why I focus more on my financial situation to dictate my portfolio than just fixed percentages.willthrill81 wrote: ↑Mon Jan 24, 2022 12:50 pmRebalancing is only a risk mitigation strategy. It does not have a mathematically driven expectation for higher returns.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
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Re: Bonds Don't Make Any Sense Right Now
What about when rebalancing between uncorrelated assets which have the same (expected?) average return? At least a chance for a "bonus" in that case.willthrill81 wrote: ↑Mon Jan 24, 2022 12:50 pmRebalancing is only a risk mitigation strategy. It does not have a mathematically driven expectation for higher returns.
But otherwise I agree with you because we are talkinga about stocks and bonds. If stocks outperform bonds over time, rebalancing will cause the portfolio to underperform compared to just letting everything ride.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
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Re: Bonds Don't Make Any Sense Right Now
There's a chance for a 'bonus' in that situation, but that's obviously not the case with stocks and bonds, whose expected returns are quite different.neurosphere wrote: ↑Mon Jan 24, 2022 1:51 pmWhat about when rebalancing between uncorrelated assets which have the same (expected?) average return? At least a chance for a "bonus" in that case.willthrill81 wrote: ↑Mon Jan 24, 2022 12:50 pmRebalancing is only a risk mitigation strategy. It does not have a mathematically driven expectation for higher returns.
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Re: Bonds Don't Make Any Sense Right Now
lol, I know. That's why I also wrote just after "But otherwise I agree with you because we are talking about stocks and bonds." I was just being pedantic in pointing out that rebalancing is not "only a risk mitigation strategy" and sometimes is used for other things. There are always likely lots of new BH and novice lurkers reading any given thread. In any case, I agree with all your points! At least, the ones in this thread.willthrill81 wrote: ↑Mon Jan 24, 2022 1:56 pmThere's a chance for a 'bonus' in that situation, but that's obviously not the case with stocks and bonds, whose expected returns are quite different.neurosphere wrote: ↑Mon Jan 24, 2022 1:51 pmWhat about when rebalancing between uncorrelated assets which have the same (expected?) average return? At least a chance for a "bonus" in that case.willthrill81 wrote: ↑Mon Jan 24, 2022 12:50 pmRebalancing is only a risk mitigation strategy. It does not have a mathematically driven expectation for higher returns.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
Re: Bonds Don't Make Any Sense Right Now
Will somebody tell me what the difference is between TIPS and I-Bonds other than the "market" restrictions on the I-bonds.
But to answer AlphaLess' question: No where right now I have to wait 'til the market opens in the morning.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
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Re: Bonds Don't Make Any Sense Right Now
You don't have to love them to appreciate the role they play in your portfolio.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
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Re: Bonds Don't Make Any Sense Right Now
Either create 100 revocable trusts OR if you have a spouse front-load for 50 years.
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Re: Bonds Don't Make Any Sense Right Now
Yes I agree, I dont see a reason to hold 40% of my assets in bonds which dont even cover inflation.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
One warning is if you want to do 100% equities then it needs to be Global Equities and dont tilt.
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Re: Bonds Don't Make Any Sense Right Now
There is no reason a portfolio of 100% equities must hold ex-US at market cap weight.
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Re: Bonds Don't Make Any Sense Right Now
Why not just wait till their done with the interest rate hikes for the year as they said they plan to do and then buy bonds at a lower NAV and higher interest rate?
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Re: Bonds Don't Make Any Sense Right Now
That's your opinion, and you're entitled to hold it. Others of us think differently.invest2bfree wrote: ↑Mon Jan 24, 2022 3:57 pm One warning is if you want to do 100% equities then it needs to be Global Equities and dont tilt.
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Re: Bonds Don't Make Any Sense Right Now
This comparison to inflation needs to go away. It is not relevant.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm With the 30 year treasury yield at 2.088% investing in long term bonds right now doesn't make any sense. Same for intermediate treasuries: why would you keep your money locked up at 1.75% for 10 years, basically guaranteeing yourself a 0% or negative real return over that period. If you need liquidity keep cash in your bank account for an emergency fund. I-bonds make a lot of sense given that you aren't taking any duration risk, you can always put this back to the government at par, and they yield an amazing 7% right now. I use them as a savings account substitute given that they also have subpar yields currently. If rates go up, you get whacked on the above referenced 10 year and 30 year bonds. If you hold those to maturity, you get whacked on a very subpar YTM. There are a lot of smart people on this board. I don't understand why there is so much love for bonds at such low interest rates.
All returns are nominal.
Stocks have also had negative real returns over the last six months.
It's entirely possible that stocks will have negative nominal returns and very negative real returns over the next five or even ten years.
Re: Bonds Don't Make Any Sense Right Now
Because they haven't signed a contract commiting to this course of action. I.e., there is still risk there.coffeeblack wrote: ↑Mon Jan 24, 2022 8:24 pm Why not just wait till their done with the interest rate hikes for the year as they said they plan to do and then buy bonds at a lower NAV and higher interest rate?
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Re: Bonds Don't Make Any Sense Right Now
Also, you don't know that if/when the current planned interest rates hikes are finished, what will happen next. Maybe rates will rise further. Maybe they will drop. Nobody knows.Booper wrote: ↑Mon Jan 24, 2022 8:51 pmBecause they haven't signed a contract commiting to this course of action. I.e., there is still risk there.coffeeblack wrote: ↑Mon Jan 24, 2022 8:24 pm Why not just wait till their done with the interest rate hikes for the year as they said they plan to do and then buy bonds at a lower NAV and higher interest rate?
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Re: Bonds Don't Make Any Sense Right Now
There are many differences. But the biggest right now is that I bonds' real yield right now is 0%, and that will be maintained until they are redeemed between 1 and 30 years from the date of purchase. TIPS' real yields are negative and have been for some time.
The Sensible Steward
Re: Bonds Don't Make Any Sense Right Now
Both I-Bonds and TIPs have fixed coupon and inflation yield.
Fixed coupon is fixed at bond's issue.
Inflation yield is determine periodically.
Currently, I-Bond fixed coupon is 0%.
Conceptually, the fixed part of TIP is negative, as evidenced from the "real" yield curve: https://www.treasury.gov/resource-cente ... =realyield
Also, I-Bonds are essentially price-risk free. It is like holding a very short-term bond.
So there are at least two benefits to I-Bonds.
Currently, if you bought $100M of I-Bonds, and hedged with $100M of 5-year TIP, you could lock-in a completely risk-free 1-1.5% yield for 5 years.
In order to get to near-zero yield on the "real" curve, you have to go all the way to 30-years, and even that is negative, with massive price risk.
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Re: Bonds Don't Make Any Sense Right Now
Did not see your answer, and answered the same thing below.willthrill81 wrote: ↑Mon Jan 24, 2022 9:05 pmThere are many differences. But the biggest right now is that I bonds' real yield right now is 0%, and that will be maintained until they are redeemed between 1 and 30 years from the date of purchase. TIPS' real yields are negative and have been for some time.
There is also another aspect: I-Bond is like a short-term bond, because it can be redeemed with par plus interest at any time.
30-year TIP has massive price risk, tied to the US treasury yield curve ups-and-downs.
I don't carry a signature because people are easily offended.
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Re: Bonds Don't Make Any Sense Right Now
Yes, I should have mentioned interest rate risk too.AlphaLess wrote: ↑Mon Jan 24, 2022 9:18 pmDid not see your answer, and answered the same thing below.willthrill81 wrote: ↑Mon Jan 24, 2022 9:05 pmThere are many differences. But the biggest right now is that I bonds' real yield right now is 0%, and that will be maintained until they are redeemed between 1 and 30 years from the date of purchase. TIPS' real yields are negative and have been for some time.
There is also another aspect: I-Bond is like a short-term bond, because it can be redeemed with par plus interest at any time.
30-year TIP has massive price risk, tied to the US treasury yield curve ups-and-downs.
The Sensible Steward
Re: Bonds Don't Make Any Sense Right Now
Not many can claim the distinction. But a household that had regularly bought I bonds annually, to the maximum limit, over the last 20 years or so, might well have a pile in the high six figures
Re: Bonds Don't Make Any Sense Right Now
Because some people would rather lose a little money instead of a lot of money, and some of those people can only afford to lose a little money instead of a lot of money.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm I don't understand why there is so much love for bonds at such low interest rates.
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Re: Bonds Don't Make Any Sense Right Now
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Last edited by AerialWombat on Fri Feb 04, 2022 1:07 pm, edited 1 time in total.
This post is a work of fiction. Any similarity to real financial advice is purely coincidental.
Re: Bonds Don't Make Any Sense Right Now
lol. This was my exact thought. Some of us have “scale” problems.
I don’t own them for making money… I own them to prevent me from making stupid emotional mistakes. That alone has saved me more money than they will ever pay in interest.
Re: Bonds Don't Make Any Sense Right Now
That's the answer!Beensabu wrote: ↑Mon Jan 24, 2022 10:00 pmBecause some people would rather lose a little money instead of a lot of money, and some of those people can only afford to lose a little money instead of a lot of money.throw123112 wrote: ↑Sun Jan 23, 2022 9:36 pm I don't understand why there is so much love for bonds at such low interest rates.
I prefer to lose "something I'm comfortable with" to inflation,
than "chasing yield" (or rather supposed stock gains),
which starting tomorrow, for all we know, could turn out being massive losses.
Then on the way down, there will be a certain percentage who will panic,
and make some impulsive move, then sell, which they may later regret.
It's happened before and will happen again.
Sounds a bit stressful to me. We only have a limited number of days in a lifetime, and no amount of money can be used to "buy back" those that were stressful or unpleasant.
And I know, EVERYBODY thinks they'll handle a massive drop just fine when it's still just words, but when it's ACTUALLY HAPPENING IN REAL TIME,
and the bullets are whizzing past your ears, and you really don't know how bad this can get--or how long it will last nor how it will end--that's a different story.
So for some, if they're already in a position where they have no need to crawl out of that foxhole, siting back and relaxing, listening to the birds chirp away,
and watching the puffy clouds float by in the sky, is a nice way to pass their remaining days, even with a "known loss" baked into it.
For others, maximum gains is all that matters, and sometimes it works out,
and sometimes it don't.
Of course a lot of this also depends on where you are in your life at the time.
If you're young and in the accumulating stage, then certain risks need to be taken
that you may not need to be taking if you're on the other end of the scale.
And even if losing a lot of your portfolio isn't going to hurt you too badly and you've got a pension and Social Security with which you can still maintain a comfortable life, watching you nest egg shrink a lot would not be a pleasant experience.
"We keep you alive to serve this ship. Row well...and live." Ben Hur...and The Taxman! hahaha (a George Harrison song)
Re: Bonds Don't Make Any Sense Right Now
Indeed:
- 2 persons,
- $10K each (maybe $15 each),
- 30 year's accumulation.
That is 2 * 10 * 30 = $600K.
Do you know if I-bonds grow compounded?
If so, then the actual number will be higher than that.
In the current environment, even the EE bonds can be bundled there too (with a 20-year horizon).
20-year nominal treasury yield is lower than 3.5.
And 20-year inflation expectation is lower than 3.5 too.
I don't carry a signature because people are easily offended.