Do I-Bonds Count (as part of your bond allocation)?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
rrouse
Posts: 80
Joined: Sat Dec 20, 2014 6:26 am

Do I-Bonds Count (as part of your bond allocation)?

Post by rrouse »

When evaluating my overall asset allocation, should I include my I-Bonds as being part of the bond portion of my portfolio? One one hand, they are bonds, but on the other hand they are not traded in the market, so they don't rise when other asset classes fall.
Gill
Posts: 8221
Joined: Sun Mar 04, 2007 7:38 pm
Location: Florida

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Gill »

Sure, they are still bonds (fixed income securities) with a principal amount payable at maturity or earlier redemption. Treat them however you like. Many people treat them as their cash reserve.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
jeff1949
Posts: 876
Joined: Mon Mar 05, 2007 9:43 am
Location: Salem, OR

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by jeff1949 »

Absolutely. They are my only bond holding, BTW.
John3754
Posts: 1289
Joined: Tue Mar 19, 2013 8:56 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by John3754 »

I count them, personally.
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 10:55 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by lack_ey »

rrouse wrote:When evaluating my overall asset allocation, should I include my I-Bonds as being part of the bond portion of my portfolio? One one hand, they are bonds, but on the other hand they are not traded in the market, so they don't rise when other asset classes fall.
I think some people would object very strongly to the notion that "[some asset classes] rise when other asset classes fall." Usually, long-term, correlations are more like 0 at the lowest and generally not negative.

It's just categorization, a mental exercise, anyhow. I'd say the answer depends on your views of portfolio construction and how you make contributions or withdrawals to it.

Personally I'd consider it functionally fixed income and low risk (no risk), so yes, I'd include it with bonds. For what it's worth, I don't make a strong distinction between bonds and cash either.
User avatar
leonidas
Posts: 487
Joined: Sun Jul 10, 2011 8:58 am
Location: Mansfield Township, NJ

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by leonidas »

They do for me as well as CDs.
User avatar
Steelersfan
Posts: 4125
Joined: Thu Jun 19, 2008 8:47 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Steelersfan »

leonidas wrote:They do for me as well as CDs.
+1
User avatar
nisiprius
Advisory Board
Posts: 52105
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by nisiprius »

I don't think it matters. Of the three asset classes, stocks, bonds, and cash, the big difference is between stocks and the other two. It is percent stocks and is the big determining factor in terms of how much risk you are taking. Series I savings bonds are an important part of my conservative assets. They are like bonds in some ways and like cash in others.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Laura
Posts: 7975
Joined: Mon Feb 19, 2007 6:40 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Laura »

Some people also count them as cash either in their retirement portfolio or as an emergency fund. Fixed income works as well since they are bonds.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
User avatar
stevewolfe
Posts: 1672
Joined: Fri Oct 10, 2008 7:07 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by stevewolfe »

leonidas wrote:They do for me as well as CDs.
Same for me.
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Mel Lindauer »

Yes, they count as bonds, and they can be short-term, intermediate-term or long-term, depending on when you plan to redeem them.

The nice thing about I Bonds is that they're risk-free and can never lose value.
Best Regards - Mel | | Semper Fi
User avatar
grabiner
Advisory Board
Posts: 35265
Joined: Tue Feb 20, 2007 10:58 pm
Location: Columbia, MD

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by grabiner »

The main reason you hold bonds is to reduce the risk of your portfolio, and I-Bonds do that very well. If you have an I-Bond, you know exactly how much inflation-adjusted value you will have in the year you cash it in, and you can choose the year.
Wiki David Grabiner
User avatar
joe8d
Posts: 4544
Joined: Tue Feb 20, 2007 7:27 pm
Location: Buffalo,NY

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by joe8d »

stevewolfe wrote:
leonidas wrote:They do for me as well as CDs.
Same for me.
+2
All the Best, | Joe
z3r0c00l
Posts: 3790
Joined: Fri Jul 06, 2012 11:43 am
Location: NYC

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by z3r0c00l »

I use them as an e fund and hold a bond mutual fund for bonds. I don't consider iBonds part of my investment money really.
70% Global Stocks / 30% Bonds
abyan
Posts: 618
Joined: Mon Jun 23, 2014 8:51 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by abyan »

I suppose it depends on how you define 'asset allocation.' In helping my parents, I started with the amount of money they had, then decided how much to put in equity, how much to put in non-equity, THEN I split up the non-equity based on various liquidities. Basically, I wanted them to have some emergency money available whenever they needed -- so that goes in the regular bank account and money markets. Then there's money that's a bit more locked up: ibonds. Then some actual bonds with the rest. So I chose from the beginning to take some of our fixed income and put it in ibonds, so I chose to define ibonds as fixed income per se.
User avatar
surfer1
Posts: 260
Joined: Fri Jan 08, 2010 8:35 pm
Location: Philadelphia

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by surfer1 »

I don't count them towards my bond allocation. I consider them as a CD or online savings account.
Last edited by surfer1 on Fri Dec 26, 2014 8:43 pm, edited 1 time in total.
User avatar
backpacker
Posts: 1620
Joined: Mon Sep 22, 2014 2:17 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by backpacker »

rrouse wrote:When evaluating my overall asset allocation, should I include my I-Bonds as being part of the bond portion of my portfolio? One one hand, they are bonds, but on the other hand they are not traded in the market, so they don't rise when other asset classes fall.
I've been thinking about this myself. It depends on what you mean by "rise." I think that iBonds and CDs rise in value when stock fall even though they don't rise in price. The only reason they don't rise in price is that you can't sell them. You can only redeem them. If you could sell them, their value would have gone up.

Say that you somehow managed to get a five-year $10,000 CD paying 10% a year for the next five years. How much is that CD worth? A lot more than $10,000 since there aren't other products that are generally available paying that high a rate. And this despite the fact that you can't sell the CD. The CD is worth more than $10,000 even though you can't cash it out (or sell it) for more than $10,000.

For these sorts of reasons, I would count iBonds and CDs as bonds for the purpose of asset allocation.
vtMaps
Posts: 1027
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by vtMaps »

Mel Lindauer wrote: The nice thing about I Bonds is that they're risk-free and can never lose value.
They never lose nominal value. The not so nice thing about today's iBonds (zero or near zero real growth) is that they are guaranteed to lose value if you are above the 0% tax bracket :(

--vtMaps
"Truly, whoever can make you believe absurdities can make you commit atrocities" --Voltaire, as translated by Norman Lewis Torrey
User avatar
Mel Lindauer
Moderator
Posts: 35757
Joined: Mon Feb 19, 2007 7:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Mel Lindauer »

vtMaps wrote:
Mel Lindauer wrote: The nice thing about I Bonds is that they're risk-free and can never lose value.
They never lose nominal value. The not so nice thing about today's iBonds (zero or near zero real growth) is that they are guaranteed to lose value if you are above the 0% tax bracket :(

--vtMaps
True, but since the rate is higher than most other risk-free options, they're still the best of a bad lot. They'll likely provide a higher after-tax return than just about any other risk-free option. And the interest is free from state and local taxation, so that adds to their after-tax return for most investors.
Best Regards - Mel | | Semper Fi
Angst
Posts: 2968
Joined: Sat Jun 09, 2007 11:31 am

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Angst »

nisiprius wrote:I don't think it matters. Of the three asset classes, stocks, bonds, and cash, the big difference is between stocks and the other two. It is percent stocks and is the big determining factor in terms of how much risk you are taking. Series I savings bonds are an important part of my conservative assets. They are like bonds in some ways and like cash in others.
+1

They're a lot like short-term CDs to me, except they 1) are inflation adjusted and 2) expand your tax deferred space.
leonard
Posts: 5993
Joined: Wed Feb 21, 2007 10:56 am

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by leonard »

Yes. They are I-BONDS.
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.
Ganacel
Posts: 194
Joined: Tue Sep 02, 2014 3:23 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by Ganacel »

I count them as part of my fixed income (cash/bonds) for the same reasons everyone else already said.
dbr
Posts: 46137
Joined: Sun Mar 04, 2007 8:50 am

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by dbr »

rrouse wrote:When evaluating my overall asset allocation, should I include my I-Bonds as being part of the bond portion of my portfolio? One one hand, they are bonds, but on the other hand they are not traded in the market, so they don't rise when other asset classes fall.
For what purpose are you labeling things?

If you want to make a distinction between things that are priced in the market and things that can be redeemed at a definite face value, then I bonds are not bonds and something that isn't a bond but is priced in the market, such as a brokered CD, is a bond, if priced in the market is what you mean by bonds.

People often lump the whole mess into a category called fixed income, which is neither income nor fixed, as compared, for example, to a fixed annuity which really is fixed and income, but is not an investment.
digit8
Posts: 720
Joined: Mon Jul 14, 2008 5:26 pm

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by digit8 »

All finances are fungible, but I-Bonds (to mangle Orwell) are more fungible then others- there is very little you can't reasonably use them for. Gut level, I'm not comfortable with the suggestion of Zvi Bodie that maxing out I Bonds by themselves (in combination with Social Security) makes a reasonable retirement investment for those of modest means. But if I were inclined to treat them as bonds (at the moment, they are emergency cash to me), I'd feel comfortable making them something around a quarter of my bond allocation.
"You can't latte yourself to bankruptcy. The bladder won't allow it." | -Katherine Porter
User avatar
NightOwl
Posts: 664
Joined: Fri Feb 06, 2009 1:08 am
Location: New York, NY

Re: Do I-Bonds Count (as part of your bond allocation)?

Post by NightOwl »

I call my currently owned I bonds my "emergency fund." Now that I have moved my e-fund into I bonds over the past few years, future purchases of I bonds ($15k/year including $5k/year tax refund in paper I bonds) will be counted as part of my fixed income allocation. But really it's all one pot of money, and the names I assign subsets of dollars are fairly immaterial.

NightOwl
"Volatility provokes the constant dread that some investors know more than we do, making us fearful of ignoring such powerful price movements." | Peter Bernstein, "The 60/40 Solution."
Post Reply