Are Savings Bonds Considered Cash?

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bogleboy
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Are Savings Bonds Considered Cash?

Post by bogleboy »

Quick question... I have $30k in I and EE Savings Bonds my Grandma bought for me 30 years. Paying about 4-5% yield. Should those be considered part of our emergency fund or are they part of the 20% bonds I plan to keep in my investment portfolio?

Thank you!
Bogleboy
TT
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Re: Are Savings Bonds Considered Cash?

Post by TT »

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bogleboy
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Re: Are Savings Bonds Considered Cash?

Post by bogleboy »

Sorry... they were bought about 15 years ago...
TT
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Re: Are Savings Bonds Considered Cash?

Post by TT »

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bogleboy
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Re: Are Savings Bonds Considered Cash?

Post by bogleboy »

Thank you! My big question is whether to count these are bonds or cash. Are they considered part of the investment portfolio or should I consider more as part of the emergency fund?
Dandy
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Re: Are Savings Bonds Considered Cash?

Post by Dandy »

Why be concerned about whether they are cash or bonds - the key allocation is equities vs fixed income and EE bonds are fixed income (and so are CDs, savings accounts etc). Cash is literally dollars and coins.

A lot depends on risk and how liquid the product is. EE bonds are less liquid than a checking account. It might take a a couple of weeks or more to get paper bonds turned into useable "cash". If you surrender paper bonds and have them held on line at Treasury Direct then you can get the proceeds of EE bonds sent to your checking account in a few business days.
AviN
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Re: Are Savings Bonds Considered Cash?

Post by AviN »

4-5% is an excellent yield for fixed income these days. That being the case, it's in your interest to hold it to duration and I'd suggest you allocate other assets to your emergency fund if practical.
bogleboy wrote:Thank you! My big question is whether to count these are bonds or cash. Are they considered part of the investment portfolio or should I consider more as part of the emergency fund?
Last edited by AviN on Sun Oct 12, 2014 7:51 am, edited 1 time in total.
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bogleboy
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Re: Are Savings Bonds Considered Cash?

Post by bogleboy »

Dandy, Thank you for the thoughtful reply. The reason I'm caught up in this is because in rebalancing my portfolio I'm confused why people say the emergency fund fixed income (CD, high yield savings) should count as part of the investment portfolio. Is a portfolio your whole net worth or is it what is available after emergency fund and housing downpayment savings? This makes a difference because as I setup my asset allocation at 80/20, if I include the emergency fund, savings bonds, housing downpayment, etc, then I don't need to rebalance and purchase more bonds. I'm confused at the big picture here.

Thanks!
dbr
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Re: Are Savings Bonds Considered Cash?

Post by dbr »

You can include the emergency fund as part of your portfolio or not and then after making that decision, decide what your asset allocation should be. It wouldn't be off base to have 70/30 with the emergency fund and 80/20 not counting the emergency fund as part of the portfolio. The reason is that if the EF is part of the portfolio, you ability to take risk is less than if the EF exists but is not part of the money under allocation. What method are you using to set your asset allocation?

As far as cash is concerned, people use a wide range of definitions for that depending on what they want to do with the answer. I find it convenient to consider what money I have in checking/savings/money market accounts to be cash because I can access it for spending without going into the brokerage accounts and selling something. But that has to do with how cash flow is managed and has nothing to do with asset allocation. As an asset cash does not exist and the value is just part of the "low risk" asset allocation in the portfolio. Other people have other ideas.
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market timer
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Re: Are Savings Bonds Considered Cash?

Post by market timer »

The key question in whether to consider these savings bonds as cash-like or bond-like is when you plan to redeem them. If you don't plan to redeem these bonds for another 15 years, they are bond-like.
Dandy
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Re: Are Savings Bonds Considered Cash?

Post by Dandy »

Dandy, Thank you for the thoughtful reply. The reason I'm caught up in this is because in rebalancing my portfolio I'm confused why people say the emergency fund fixed income (CD, high yield savings) should count as part of the investment portfolio. Is a portfolio your whole net worth or is it what is available after emergency fund and housing down payment savings? This makes a difference because as I setup my asset allocation at 80/20, if I include the emergency fund, savings bonds, housing down payment, etc, then I don't need to rebalance and purchase more bonds. I'm confused at the big picture here.


Here is my take:
1. Savings for home deposit - keep it safe and don't include in portfolio asset allocation
2. emergency fund - keep it safe and usually it is not part of your asset allocation. Most people say keep it separate.
I never had a specific emergency fund but always made sure I had lots of options e.g. money in savings, savings bonds, short term bonds, good credit and when I owned a house a line of credit. So, I always had considered it part of my overall portfolio. This becomes less risky as your overall portfolio grows since there is money to fall back on in a sudden large need for money. So, early on maybe keep it separate but as you get a larger portfolio you might just fold it into your fixed income allocation. If you use it then just reallocate some equities to fixed income.
3. EE bonds - You need to decide if they are part of your separate emergency fund or use other investments/savings to develop your E fund. If you decide to use them as part of your E fund then getting them online at Treasury Direct may be a good thing.

Also, keep in mind most emergencies don't require cash outlays today. e.g. people accept credit cards when you need a new transmission. So you usually have some time to get money into your checking account to pay off the credit card charge.
trueblueky
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Re: Are Savings Bonds Considered Cash?

Post by trueblueky »

Dandy wrote:EE bonds are less liquid than a checking account. It might take a a couple of weeks or more to get paper bonds turned into useable "cash". If you surrender paper bonds and have them held on line at Treasury Direct then you can get the proceeds of EE bonds sent to your checking account in a few business days.
I have never experienced this problem. I go to the bank, take the bonds out of the box, and cash them right there.
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convert949
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Re: Are Savings Bonds Considered Cash?

Post by convert949 »

bogleboy wrote:Quick question... I have $30k in I and EE Savings Bonds my Grandma bought for me 30 years. Paying about 4-5% yield. Should those be considered part of our emergency fund or are they part of the 20% bonds I plan to keep in my investment portfolio?

Thank you!
Bogleboy
Depends... I would choose one of the following two options:

1. Cash is anything that has a stable principle, i.e. savings bonds, CD's, Savings Accounts. A bond has a value that can fluctuate.

2. As others have previously mentioned, cash is in a bank account and defined as funds allocated for near term uses. Doesn't matter if it is a down payment or living expenses if a retiree. Bonds are meant to be kept until some future time consistent with the duration of the bond or bond fund.

I personally adhere to number 1. As a retiree I keep one half of my fixed income in intermediate term "bonds" and one half in Cash like instruments (I bonds, CD's and Savings Accounts).

Hope this helps...

Best to all,

Bob
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CABob
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Re: Are Savings Bonds Considered Cash?

Post by CABob »

bogleboy wrote:Thank you! My big question is whether to count these are bonds or cash. Are they considered part of the investment portfolio or should I consider more as part of the emergency fund?
I don't really have anything identified as an emergency fund or perhaps my entire portfolio is my emergency fund so I don't have the issue you are asking about.
They are certainly bonds, but as far as looking at asset allocation I consider E-bonds as cash. My reasoning is that they can be cashed in at any time for a known cash value. I don't draw critical distinctions between cash and bonds, but, instead consider cash to be the shortest duration of fixed income investments.
Whether you consider them to be bonds or cash is up to you as long as you understand what you are doing and why.
Bob
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ogd
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Re: Are Savings Bonds Considered Cash?

Post by ogd »

In theory, they are as good as cash. In practice, I find the $10K allowance so limiting that I'd be extremely reluctant to throw out even a year's worth. So they're at the bottom of my list of things to spend in an emergency, way below market bonds which can be replaced anytime, in effect turning them into long-term investments.
CABob wrote:They are certainly bonds, but as far as looking at asset allocation I consider E-bonds as cash.
Careful here. If you mean EE-bonds, they start out very close to cash, but the farther you get in that 20 year window the more you have to lose by selling them. E.g. 10 years from now you'd be losing 41% of implied interest -- or alternatively a safe investment making 7.1% for the next 10 years, which is probably irreplaceable. This is why I don't like EE bonds, they're tricky little buggers :annoyed
avalpert
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Re: Are Savings Bonds Considered Cash?

Post by avalpert »

This is one of the reasons I don't have artificial buckets in my portfolio between 'emergency funds' and the rest.

How about this - if you call them part of your emergency fund what would you do differently than if you called them part of your bond allocation?
Topic Author
bogleboy
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Re: Are Savings Bonds Considered Cash?

Post by bogleboy »

Thank you for everyone's detailed help and suggestions. I've decided to call them part of my bond portfolio and split my assets into two buckets: retirement investment portfolio and emergency fund/checking account. I will not include the EF/checking account when I make retirement portfolio decisions/asset allocations.
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