EE Bonds as asset allocation?

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supernova
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EE Bonds as asset allocation?

Post by supernova » Sat Oct 10, 2015 4:20 pm

I am low on tax-advantaged space (I max 401k and Roth each year). Since last year, I decided to start buying my max in EE Bonds, since in 20 years they will be an income floor, so it is going to be similar to a $20,000 pre-tax annuity per year. I am hoping to be financially independent within 20 years (I am currently 32), so starting when I am 51 I will have a $20,000 income floor.

The reason I am concerned is that currently I have an AA of 25% bonds, 75% stocks, and 1/3 of my bond allocation is currently in EE bonds. I am concerned that eventually my bond allocation will be a vast majority of EE bonds, which is not exactly liquid.

1. Should I still count EE Bonds as part of my bond allocation?
2. If I don't count them, should I lower my bond allocation so that I am not overweight in bonds?

EMDW
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Re: EE Bonds as asset allocation?

Post by EMDW » Sat Oct 10, 2015 4:42 pm

My understanding is that it is counted as part of the overall bond allocation but in a taxable account.

trueblueky
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Re: EE Bonds as asset allocation?

Post by trueblueky » Sat Oct 10, 2015 5:00 pm

supernova wrote:1. Should I still count EE Bonds as part of my bond allocation?
yes

John3754
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Re: EE Bonds as asset allocation?

Post by John3754 » Sat Oct 10, 2015 5:03 pm

If you don't count them you're just practicing mental accounting/trying to fool yourself into believing something is true that isn't.

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Re: EE Bonds as asset allocation?

Post by Mel Lindauer » Sat Oct 10, 2015 5:16 pm

Yes, count them. After all, they are called EE BONDS.
Best Regards - Mel | | Semper Fi

Angst
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Re: EE Bonds as asset allocation?

Post by Angst » Sat Oct 10, 2015 5:28 pm

Yes of course, count them! But don't accumulate so many EE Bonds that you have nothing left for rebalancing when it's called for. EE Bonds are actually quite liquid - just go to Treasury Direct and sell them anytime you want - but I think I understand you; there's no point in buying them unless you're committed to holding them for 20 years.

Frankly, I think it's pointless to plan to buy EE Bonds for the next 20 years. I've been buying them for the last 5 or 6 but that's because 20-yr treasury rates have generally been well below 3.5% for most of that time. If/when that changes, I'll have no reason to add to my EE Bonds.

Topic Author
supernova
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Re: EE Bonds as asset allocation?

Post by supernova » Sat Oct 10, 2015 5:48 pm

Ok, thanks all! I will count them as bonds

singlephoton
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Re: EE Bonds as asset allocation?

Post by singlephoton » Sat Oct 10, 2015 6:52 pm

If you buy $10k EE Bonds with intention to hold for 20 years, do you count it as $10k or $20k in your bond allocation?

Angst
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Re: EE Bonds as asset allocation?

Post by Angst » Sat Oct 10, 2015 7:28 pm

singlephoton wrote:If you buy $10k EE Bonds with intention to hold for 20 years, do you count it as $10k or $20k in your bond allocation?
To me, this depends on the role they play in one's portfolio. In mine, they represent such a small and decreasing percentage of my entire portfolio, that there is essentially zero possibility that I will ever be compelled to sell any of them prior to maturity. If they were at any risk of being sold, I'd say one would be obliged to value them at exactly what Treasury Direct says you can get for them. I put myself at the other extreme and for the sake of simplicity accrue 1/240 of their purchase price every month, and when I arrive at month #240 (maturity) they will equal 200% of their purchase price and I will redeem them.

Topic Author
supernova
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Re: EE Bonds as asset allocation?

Post by supernova » Sat Oct 10, 2015 7:51 pm

singlephoton wrote:If you buy $10k EE Bonds with intention to hold for 20 years, do you count it as $10k or $20k in your bond allocation?
I count them as whatever treasury direct says they are worth.

John3754
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Re: EE Bonds as asset allocation?

Post by John3754 » Sat Oct 10, 2015 8:06 pm

singlephoton wrote:If you buy $10k EE Bonds with intention to hold for 20 years, do you count it as $10k or $20k in your bond allocation?
They should be counted as what they're worth now, not what they're worth 20 years from now.

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