High allocation to Ibonds and EE bonds?

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jdilla1107
Posts: 849
Joined: Sun Jun 24, 2012 8:31 pm

High allocation to Ibonds and EE bonds?

Post by jdilla1107 » Fri Jul 05, 2013 7:11 pm

I've been maxing I and EE bonds for several years now. I am 35 years old, so am an early-ish accumulator. I have been using the following logic:

- Ibonds are better than TIPs, savings accounts, and other short cash savings accounts.
- EE bonds are (were? 20 yr treasury is like 3.2% now) better than long treasuries.

However, I now have quite a bit of both of these now and I never thought too much about when I would stop.

Thoughts/Questions:

- Inflation protection seems less valuable for an early accumulator. Perhaps I should stop with the I-bonds.
- Perhaps I should cap my EE bonds at what something like TBM allocates to long bonds. (~15%-20% of bond allocation)
- Assuming you were an early accumulator and had no limit to EE and I bonds, what percent of your bond allocation would you make them?
- What are some other considerations for when to cap it?

Thanks.

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TomatoTomahto
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Re: High allocation to Ibonds and EE bonds?

Post by TomatoTomahto » Fri Jul 05, 2013 7:37 pm

Assuming you were an early accumulator and had no limit to EE and I bonds, what percent of your bond allocation would you make them?
If it were possible, I think I would make I bonds 50% of my bond allocation, the other 50% being TBM. Since it isn't possible, I've made I Bonds a much smaller percentage, with the difference going into actual TIPS (and also a fair amount of TIPS fund). I'm probably inflation paranoid, but it has worked well enough for me over the years, although (spoiler alert!) the more recent past hasn't been as good.
Okay, I get it; I won't be political or controversial. The Earth is flat.

DickBenson
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Joined: Sun Apr 08, 2007 7:27 pm

Re: High allocation to Ibonds and EE bonds?

Post by DickBenson » Fri Jul 05, 2013 9:41 pm

jdilla1107 wrote:I've been maxing I and EE bonds for several years now. I am 35 years old,

- Inflation protection seems less valuable for an early accumulator.
One issue that you need to consider is that the bonds you now have are likely to mature at a time when you are at an age of maximum income. Thus you could be hit with a high tax bill (unless used for education purposes).

TIPS in a tax deferred account would give you more control over such a tax issue, and still give you similar unexpected inflation protection.

Also, as you indicated, inflation protection is less valuable for an early accumulator as it is for someone approaching or in retirement.

Dick

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