Questions on I-Bonds and Three Fund Approach

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Questions on I-Bonds and Three Fund Approach

Postby LFKB » Thu Dec 27, 2012 3:29 pm

I'm new here and have a few questions on i-bonds and the three fund approach which are two investment opportunities I am considering pursuing based on suggestions from this board:

I-Bonds
1. It seems like the main benefits of i-bonds are 1) no state taxes on interest 2) no chance for the face value to decline and 3) higher interest rates than similar alternatives (CDs, ING account, etc) while the negatives are that you must hold for 5 years or forego the last three months interest.

Some questions on i-bonds...
1. Are there other benefits I'm missing?
2. Are there negative aspects I am missing out on?
3. Is there a maximum purchase amount? I thought I read that but now can't find it, may be getting confused with another investment type
4. Is the only way to purchase through treasurydirect? Can I buy through Scwhab or somehow link to Schwab so I can see my balance?
5. What is the expected rate of return? I realize it fluctuates with interest rates but I guess for now I should expect just under 2%, right?
6. Is this what most on the board invest for their cash savings account or emergency fund account or are there other alternative I should look into?

Three Fund Approach
1. Do those that use this approach re-balance on their own? If so, how often and how does one go about doing it?
2. Can you automatically set a re-balancing through Vanguard?

Thanks
LFKB
 
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Re: Questions on I-Bonds and Three Fund Approach

Postby dad2000 » Thu Dec 27, 2012 3:40 pm

One other benefit: The interest may also be exempt from federal taxes when used to pay for qualified educational uses subject to AGI thresholds.

One other negative: There is an annual purchase limit ($10k per "person"), hence a limit on what you can reinvest should rates go up. I quote person because the definition is a little different than you might think (look for previous threads on this).
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Re: Questions on I-Bonds and Three Fund Approach

Postby ruralavalon » Thu Dec 27, 2012 3:40 pm

This answers most of your questions -- Wiki article link: I Savings Bonds

I don't use I bonds myself, so I can't address the rest of your questions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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Re: Questions on I-Bonds and Three Fund Approach

Postby LFKB » Thu Dec 27, 2012 3:41 pm

ruralavalon wrote:This answers most of your questions -- Wiki article link: I Savings Bonds

I don't use I bonds myself, so I can't address the rest of your questions.


Thanks for pointing me here. I didn't see it when I originally checked the Wiki. I will give it a look but still welcome people to respond as appropriate.
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Re: Questions on I-Bonds and Three Fund Approach

Postby Taylor Larimore » Thu Dec 27, 2012 4:00 pm

LFKB:

It is normally easy to rebalance the Three Fund Portfolio because there are only three funds and they have minimum volatility.
Sub asset-classes within total market funds are automatically rebalanced.
Once a year rebalancing should be enough.

To my knowledge, Vanguard has no rebalancing service.

Best wishes
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Questions on I-Bonds and Three Fund Approach

Postby Grt2bOutdoors » Thu Dec 27, 2012 4:10 pm

LFKB wrote:I'm new here and have a few questions on i-bonds and the three fund approach which are two investment opportunities I am considering pursuing based on suggestions from this board:

I-Bonds
1. It seems like the main benefits of i-bonds are 1) no state taxes on interest 2) no chance for the face value to decline and 3) higher interest rates than similar alternatives (CDs, ING account, etc) while the negatives are that you must hold for 5 years or forego the last three months interest.

You receive an interest rate based on the semi annual change in the Consumer Price Index-U. You are viewing the current higher interest rate as being offered to beat other alternatives, that is incorrect. In some instances, the I-bond rate paid can be lower than CD's, savings accounts and money markets. This has occurred once before where it paid a lower rate and those who bailed out, are now probably wishing they did not do so. Really, the main benefit should be viewed as the value of the bond will be there when you seek to redeem plus a certain sum of interest - if stability of principal is your desire, you've come to the right place.

Some questions on i-bonds...
1. Are there other benefits I'm missing? Read the above.
2. Are there negative aspects I am missing out on? The rate of interest can go as low as zero, but can not go negative.
3. Is there a maximum purchase amount? I thought I read that but now can't find it, may be getting confused with another investment type Annual maximum per social security number is $10,000.
4. Is the only way to purchase through treasurydirect? Yes. Can I buy through Scwhab or somehow link to Schwab so I can see my balance? No.
5. What is the expected rate of return? I realize it fluctuates with interest rates but I guess for now I should expect just under 2%, right?If you buy today, your semi-annual rate of return will be 1.76%, no one knows what the next semi-annual rate is right now, check back in mid April for our best guestimates (of which there will be many :D )
6. Is this what most on the board invest for their cash savings account or emergency fund account or are there other alternative I should look into? There is on one size fits all here on the board, many use I-bonds, some use a combination of I-bonds, EE bonds, FDIC insured savings accounts, CD ladders, money markets, or even reward checking accounts.

Three Fund Approach
1. Do those that use this approach re-balance on their own? If so, how often and how does one go about doing it?
2. Can you automatically set a re-balancing through Vanguard?

Thanks
"Luck is not a strategy" Asking Portfolio Questions
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Re: Questions on I-Bonds and Three Fund Approach

Postby LFKB » Thu Dec 27, 2012 6:33 pm

Grt2bOutdoors wrote:
LFKB wrote:I'm new here and have a few questions on i-bonds and the three fund approach which are two investment opportunities I am considering pursuing based on suggestions from this board:

I-Bonds
1. It seems like the main benefits of i-bonds are 1) no state taxes on interest 2) no chance for the face value to decline and 3) higher interest rates than similar alternatives (CDs, ING account, etc) while the negatives are that you must hold for 5 years or forego the last three months interest.

You receive an interest rate based on the semi annual change in the Consumer Price Index-U. You are viewing the current higher interest rate as being offered to beat other alternatives, that is incorrect. In some instances, the I-bond rate paid can be lower than CD's, savings accounts and money markets. This has occurred once before where it paid a lower rate and those who bailed out, are now probably wishing they did not do so. Really, the main benefit should be viewed as the value of the bond will be there when you seek to redeem plus a certain sum of interest - if stability of principal is your desire, you've come to the right place.

Some questions on i-bonds...
1. Are there other benefits I'm missing? Read the above.
2. Are there negative aspects I am missing out on? The rate of interest can go as low as zero, but can not go negative.
3. Is there a maximum purchase amount? I thought I read that but now can't find it, may be getting confused with another investment type Annual maximum per social security number is $10,000.
4. Is the only way to purchase through treasurydirect? Yes. Can I buy through Scwhab or somehow link to Schwab so I can see my balance? No.
5. What is the expected rate of return? I realize it fluctuates with interest rates but I guess for now I should expect just under 2%, right?If you buy today, your semi-annual rate of return will be 1.76%, no one knows what the next semi-annual rate is right now, check back in mid April for our best guestimates (of which there will be many :D )
6. Is this what most on the board invest for their cash savings account or emergency fund account or are there other alternative I should look into? There is on one size fits all here on the board, many use I-bonds, some use a combination of I-bonds, EE bonds, FDIC insured savings accounts, CD ladders, money markets, or even reward checking accounts.

Three Fund Approach
1. Do those that use this approach re-balance on their own? If so, how often and how does one go about doing it?
2. Can you automatically set a re-balancing through Vanguard?

Thanks


Thanks, that is helpful
LFKB
 
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