Buying more I-Bonds

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cflannagan
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Buying more I-Bonds

Post by cflannagan »

Need to buy about $8k worth of inflation-protected securities, to bring us back to target (the last step of bringing us to overall AA target levels after a windfall).

Are there any sort of forecasts about I-Bond rates increasing few months later (TreasuryDirect says 1.18% rate now until October 31)?

Don't know enough about them to determine whether I should just buy them now or if people are predicting better rates few months later, to wait until then.

(note: cannot buy TIPS, because I'm all out of tax-advantaged space.. which currently is taken up by REITs and TIPS, and my 401k only has nominal bond fund available as a viable FI choice, which means I need munis as well in taxable space)
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abuss368
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Re: Buying more I-Bonds

Post by abuss368 »

Consider the simplicity of owning and investing in the entire bond market with the low costs Total Bond Market (TBM) Index fund from Vanguard.

My opinion is bonds are for safety and income. Anything more than one bond fund, or two max, if overkill and there is no need. That said, if your plan calls for TIPS, I would only consider one other fund or just TBM.

Keep investing simple.
John C. Bogle: “Simplicity is the master key to financial success."
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cflannagan
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Re: Buying more I-Bonds

Post by cflannagan »

abuss368 wrote:Consider the simplicity of owning and investing in the entire bond market with the low costs Total Bond Market (TBM) Index fund from Vanguard.

My opinion is bonds are for safety and income. Anything more than one bond fund, or two max, if overkill and there is no need. That said, if your plan calls for TIPS, I would only consider one other fund or just TBM.

Keep investing simple.
TBM, in taxable space? No. Well, at least I've been told we shouldn't be doing that.

Anyway, our AA does call for inflation-protected securities, so we're sticking with our IPS (investment policy statement). We as a Boglehead should not deviate from our IPS's, right? ;)
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Re: Buying more I-Bonds

Post by abuss368 »

Correct.

We invest in Total Bond in tax advantage and Intermediate Term Tax Exempt in taxable. Simple and easy to understand.

At the end of the day, the only portfolio that works is the one that is right for you.

Best.
John C. Bogle: “Simplicity is the master key to financial success."
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cflannagan
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Re: Buying more I-Bonds

Post by cflannagan »

abuss368 wrote:Correct.

We invest in Total Bond in tax advantage and Intermediate Term Tax Exempt in taxable. Simple and easy to understand.

At the end of the day, the only portfolio that works is the one that is right for you.

Best.
And the "right one for us" is the one we chose for ourselves.. and it just so happens this allocation that we chose calls for more I-Bonds. :-D

This thread isn't really a question of whether or not I "should" buy I-Bonds, but "when". Just wanted to clarify that.

If there no real "forecast" as to whether the I-Bond rate will be better than 1.18% after October 31, then we would just go ahead and buy it today.
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Re: Buying more I-Bonds

Post by stevewolfe »

Regarding the question on I-Bonds, take a look at the SavingsBondAdvisor site for the latest update on inflation estimate for the current 6 month period.

HIstorically, while it has varied, the I-Bond fixed rate has been about 1% or so below the 10 year TIP. 10 Year TIP is currently yielding about 0.65%, so it's very unlikely that the next I-bond fixed rate will be non-zero. Even if rates were to move up another 1% like they did in April, May and June, the rate would be changing late in the 6 month window and I think they'd leave the rate at 0% anyway frankly.

So that leaves the inflation portion. Right now it's 1.18% like you said. If you wait till the last two weeks of October, you can calculate what the rate for the 11/1/2013 issue will be (folks on here will do it for you, there is usually a post) and you can decide then whether it's better to buy during the last few weeks of October or in November at the new rate.
burma7734
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Re: Buying more I-Bonds

Post by burma7734 »

I guess what you are really asking is if the fixed rate on I-Bonds might be greater than the current zero after November. The current yield is, as you noted, 0% fixed + 1.18% CPI. If you bought today, or in November your CPI factor will eventually be the same.

I am not sure how Treasury decides on the fixed factor. I do know you lose two months interest by waiting till November = 0.2%.
Last edited by burma7734 on Fri Aug 30, 2013 2:49 pm, edited 2 times in total.
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Re: Buying more I-Bonds

Post by cflannagan »

stevewolfe wrote:Regarding the question on I-Bonds, take a look at the SavingsBondAdvisor site for the latest update on inflation estimate for the current 6 month period.

HIstorically, while it has varied, the I-Bond fixed rate has been about 1% or so below the 10 year TIP. 10 Year TIP is currently yielding about 0.65%, so it's very unlikely that the next I-bond fixed rate will be non-zero. Even if rates were to move up another 1% like they did in April, May and June, the rate would be changing late in the 6 month window and I think they'd leave the rate at 0% anyway frankly.

So that leaves the inflation portion. Right now it's 1.18% like you said. If you wait till the last two weeks of October, you can calculate what the rate for the 11/1/2013 issue will be (folks on here will do it for you, there is usually a post) and you can decide then whether it's better to buy during the last few weeks of October or in November at the new rate.
Thanks - that is a good plan. I will definitely set up an reminder alert for last few weeks of October and see if there is new data to help us reach that decision.
linguini
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Re: Buying more I-Bonds

Post by linguini »

abuss368 wrote:Correct.

We invest in Total Bond in tax advantage and Intermediate Term Tax Exempt in taxable. Simple and easy to understand.

At the end of the day, the only portfolio that works is the one that is right for you.

Best.
I'm glad that total bond and intermediate term tax exempt work for you, but the OP's portfolio calls for inflation-protected US treasuries. Total bond market and intermediate term tax exempt aren't inflation-protected US treasuries, so they are not actually suitable substitutes for a TIPS fund or I Bonds.
burma7734
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Re: Buying more I-Bonds

Post by burma7734 »

So that leaves the inflation portion. Right now it's 1.18% like you said. If you wait till the last two weeks of October, you can calculate what the rate for the 11/1/2013 issue will be (folks on here will do it for you, there is usually a post) and you can decide then whether it's better to buy during the last few weeks of October or in November at the new rate.
We are talking about a few tenths of point on the CPI factor for six months on a $8k investment.... that is only about $20 one way or the other. Surely not worth fretting about.
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Re: Buying more I-Bonds

Post by stevewolfe »

burma7734 wrote:We are talking about a few tenths of point on the CPI factor for six months on a $8k investment.... that is only about $20 one way or the other. Surely not worth fretting about.
That's your choice. OP asked for information from which to make their own choice. :beer
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cflannagan
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Re: Buying more I-Bonds

Post by cflannagan »

stevewolfe wrote:
burma7734 wrote:We are talking about a few tenths of point on the CPI factor for six months on a $8k investment.... that is only about $20 one way or the other. Surely not worth fretting about.
That's your choice. OP asked for information from which to make their own choice. :beer
Thanks Burma and stevewolfe - yes I figured CPI is probably not going to be worth waiting for to find out in a few months. But am very curious how fixed rate is determined, and my understanding is that this is pretty much set arbitrarily by treasury.

Updated: I searched Bogleheads and found this fairly recent thread: http://www.bogleheads.org/forum/viewtop ... 0&t=117959

I agree with Mel's reasoning. TreasuryDirect lowered I-Bond limit from 30k to 10k, so that speaks volumes of how they perceive the I-Bonds.

I still have April 2008 issue I-Bonds, which had 1.20% fixed rate, and was the last "good" fixed rate for I-Bonds http://www.treasurydirect.gov/indiv/res ... dterms.htm (boy, look at those 3.0% fixed rates i 1998!)

Looks like there's no point in waiting, it's not likely the government will bother raising fixed rate anytime soon in the current environment. We will go ahead and buy the I-Bonds.

Thanks all
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