I bonds May 2017

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
robertmcd
Posts: 70
Joined: Tue Aug 09, 2016 9:06 am

I bonds May 2017

Postby robertmcd » Wed Apr 19, 2017 9:07 am

So what is the current state of I bonds right now? Should I wait to buy my $10,000 in May? I have never used them before but I am currently putting away funds in CDs for a house downpayment in the next 2-7 years and I am wondering if they are a good deal.

Grt2bOutdoors
Posts: 15842
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I bonds May 2017

Postby Grt2bOutdoors » Wed Apr 19, 2017 9:11 am

If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
flamesabers
Posts: 353
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: I bonds May 2017

Postby flamesabers » Wed Apr 19, 2017 9:21 am

Grt2bOutdoors wrote:If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


I agree. I'll be buying more I-Bonds in the next few days.

User avatar
DaftInvestor
Posts: 2065
Joined: Wed Feb 19, 2014 10:11 am

Re: I bonds May 2017

Postby DaftInvestor » Wed Apr 19, 2017 10:18 am

flamesabers wrote:
Grt2bOutdoors wrote:If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


I agree. I'll be buying more I-Bonds in the next few days.


I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.

User avatar
flamesabers
Posts: 353
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: I bonds May 2017

Postby flamesabers » Wed Apr 19, 2017 10:23 am

DaftInvestor wrote:
flamesabers wrote:
Grt2bOutdoors wrote:If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


I agree. I'll be buying more I-Bonds in the next few days.


I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Wed Apr 19, 2017 10:28 am

flamesabers wrote:
DaftInvestor wrote:
flamesabers wrote:
Grt2bOutdoors wrote:If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


I agree. I'll be buying more I-Bonds in the next few days.


I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.
Run, You Clever Boy!

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Wed Apr 19, 2017 10:31 am

robertmcd wrote:So what is the current state of I bonds right now? Should I wait to buy my $10,000 in May? I have never used them before but I am currently putting away funds in CDs for a house downpayment in the next 2-7 years and I am wondering if they are a good deal.


You can also split the baby $5K and $5K. But seriously we are discussing a potential 0.10% annually on $10,000, is it worth stressing over one way or the other?
Run, You Clever Boy!

User avatar
DaftInvestor
Posts: 2065
Joined: Wed Feb 19, 2014 10:11 am

Re: I bonds May 2017

Postby DaftInvestor » Wed Apr 19, 2017 10:37 am

TheTimeLord wrote:
flamesabers wrote:
DaftInvestor wrote:
flamesabers wrote:
Grt2bOutdoors wrote:If you buy in April you will get a fixed rate of 0% + a variable inflation rate of 2.76% for the next 6 months - April to October 2017. In November 2017, you will get a rate of 0% fixed + a variable rate of 1.91%, the blended rate is 2.35%. The first twelve months earnings is 2.35%, after that no one knows.
I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


I agree. I'll be buying more I-Bonds in the next few days.


I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.

Da5id
Posts: 1061
Joined: Fri Feb 26, 2016 8:20 am

Re: I bonds May 2017

Postby Da5id » Wed Apr 19, 2017 10:42 am

DaftInvestor wrote:Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


I just bought mine for the year as well, and got an extra almost $5K from my tax refund.

But as longer term holdings, some have been saying (other than maybe tax deferral) that currently TIPs become a better deal somewhere around 5 years. Any opinion on that?

anoop
Posts: 361
Joined: Tue Mar 04, 2014 1:33 am

Re: I bonds May 2017

Postby anoop » Wed Apr 19, 2017 10:47 am

https://tipswatch.com/2017/04/18/i-bond ... -decision/

I'm planning to just buy in May (both I and EE).

User avatar
DaftInvestor
Posts: 2065
Joined: Wed Feb 19, 2014 10:11 am

Re: I bonds May 2017

Postby DaftInvestor » Wed Apr 19, 2017 10:53 am

Da5id wrote:
DaftInvestor wrote:Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


I just bought mine for the year as well, and got an extra almost $5K from my tax refund.

But as longer term holdings, some have been saying (other than maybe tax deferral) that currently TIPs become a better deal somewhere around 5 years. Any opinion on that?


I like the way iBonds extend my tax-deferred space - I don't need to pay fed taxes on them until I need them. Last time I ran the math with my expected tax situation before and after retirement - TIPS were still a loser (e.g. the "fixed" component eroded due to high-tax payments) - but it was close. Also - iBonds are easier to buy and sell. If I buy newly auctioned TIPS I need to choose a duration (5, 10, 30 I think) and then, if I want to sell them prior to duration, I need to try my luck on the secondary market.
I could be wrong (you are asking some who chose "DaftInvestor" as their user-name after all) - but I did read all the other threads and made a determination based upon my situation and what I was trying to get out of iBonds.
And then there is now this:
https://tipswatch.com/2017/04/17/new-5- ... e-a-loser/
Last edited by DaftInvestor on Wed Apr 19, 2017 10:57 am, edited 1 time in total.

User avatar
flamesabers
Posts: 353
Joined: Fri Mar 03, 2017 12:05 pm
Location: Rochester, MN

Re: I bonds May 2017

Postby flamesabers » Wed Apr 19, 2017 10:54 am

Da5id wrote:But as longer term holdings, some have been saying (other than maybe tax deferral) that currently TIPs become a better deal somewhere around 5 years. Any opinion on that?


Here's a breakdown on TIPS vs. I-Bonds

https://www.bogleheads.org/wiki/I_Bonds_vs_TIPS

Also, I think there have been a few threads on this topic.

anoop wrote:https://tipswatch.com/2017/04/18/i-bond-dilemma-buy-now-buy-later-or-split-the-decision/

I'm planning to just buy in May (both I and EE).


If fixed rates go up for I-Bonds, I'll buy more between May and November then. I'm nowhere near maxing out my I-Bonds purchase since my current priority is maxing out my 401k.

Grt2bOutdoors
Posts: 15842
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I bonds May 2017

Postby Grt2bOutdoors » Wed Apr 19, 2017 11:41 am

DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
DaftInvestor wrote:
flamesabers wrote:
I agree. I'll be buying more I-Bonds in the next few days.


I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Wed Apr 19, 2017 11:55 am

Grt2bOutdoors wrote:
DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
DaftInvestor wrote:
I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.


The problem is not the rate of return if held, the problem is the minimum holding period of 20 years to get the return. This is quite a price to pay for known, because if you need the money in 19 years and 11 months well the plan goes hugely south. So yes, they are king in a deflationary world where you can use other funds for 20 years, I think you will be hard pressed to find many scenarios where you would truly want to be stuck in something that pays 3.53% nominal only if you hold it 20 years. Contrast to the S&P 500 paying 1.9% dividend so it would only need what 1.6% annual increase to be a wash. BTW, were Japanese investors forced over the last 20 years to only invest in domestic stocks or could they have been happily making money investing internationally. But to the point ask yourself 2 questions and if the answer is yes to both then I guess the EE is for you.

1) Would you lock your money up for 20 years for a nominal 3.53% annual return?
2) Would you happily take a 0.10% annual return on your money if invested for less than 20 years
Run, You Clever Boy!

Grt2bOutdoors
Posts: 15842
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I bonds May 2017

Postby Grt2bOutdoors » Wed Apr 19, 2017 12:06 pm

TheTimeLord wrote:
Grt2bOutdoors wrote:
DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.


The problem is not the rate of return if held, the problem is the minimum holding period of 20 years to get the return. This is quite a price to pay for known, because if you need the money in 19 years and 11 months well the plan goes hugely south. So yes, they are king in a deflationary world where you can use other funds for 20 years, I think you will be hard pressed to find many scenarios where you would truly want to be stuck in something that pays 3.53% nominal only if you hold it 20 years. Contrast to the S&P 500 paying 1.9% dividend so it would only need what 1.6% annual increase to be a wash. BTW, were Japanese investors forced over the last 20 years to only invest in domestic stocks or could they have been happily making money investing internationally. But to the point ask yourself 2 questions and if the answer is yes to both then I guess the EE is for you.

1) Would you lock your money up for 20 years for a nominal 3.53% annual return?
2) Would you happily take a 0.10% annual return on your money if invested for less than 20 years


For that portion of my portfolio, the answer is yes. But then again, when investing in other options, I always ask myself the same question Larry recommends you ask yourself:
1) Do you have the ability, need and willingness to hold such an investment?
Willingness when the markets are going up year after year is usually an "easy" decision.
Ability - well that is predicated on current personal finances and portfolio size. Easy for someone who may have a $1Billion dollar or $100 million or a $10 or $5 million dollar portfolio, not so easy for someone who has a much smaller portfolio where risk of principal loss in nominal terms is more important for the ability for them to sleep at night.
Need - For some allocation in my portfolio, what floor do I have with these investments? In equities, one should assume there is no floor, because in an bankruptcy you can and usually do get wiped out when holding common equity.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Wed Apr 19, 2017 12:17 pm

Grt2bOutdoors wrote:
DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
DaftInvestor wrote:
I disagree. I'm planning on holding my iBonds for a long time so I'll forgo the additional ~$40 in the first 6 months in hopes for an additional $10 per year if they increase the fixed rate to 0.1%. (with money this small - it hardly matter though).

OP: if you search "ibonds" up in the search box you will find a lot of recent lengthy debates on this.


How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.



Can't imagine why someone would find something with a known nominal rate that has to be held for 20 years to be superior to something that has a known real rate that only has to be held for 5 years but can be held for 30 years. If you truly want known, then a known real rate would seem to be the way to go.
Run, You Clever Boy!

User avatar
DaftInvestor
Posts: 2065
Joined: Wed Feb 19, 2014 10:11 am

Re: I bonds May 2017

Postby DaftInvestor » Wed Apr 19, 2017 12:24 pm

TheTimeLord wrote:
Grt2bOutdoors wrote:
DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.



Can't imagine why someone would find something with a known nominal rate that has to be held for 20 years to be superior to something that has a known real rate that only has to be held for 5 years but can be held for 30 years. If you truly want known, then a known real rate would seem to be the way to go.


I'll let you guys debate this since you both have such great points - but for the record I never said they were a poor investment nor did I ever say I didn't have any EE bonds (someone seemed to assume that based upon the fact I was buying iBonds - nothing stops you from holding some of each).

Grt2bOutdoors
Posts: 15842
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I bonds May 2017

Postby Grt2bOutdoors » Wed Apr 19, 2017 1:03 pm

TheTimeLord wrote:
Grt2bOutdoors wrote:
DaftInvestor wrote:
TheTimeLord wrote:
flamesabers wrote:
How long are you planning to hold your I-Bonds? If it's for 20 years, why not just go with EE Bonds?


Because I Bonds are flexible and can be cashed in after 1 year and adjust if we have severe inflation. Aren't series EE are a bad investment unless you hold them at least 20 years. I have a hard seeing a savings bond as a good investment for a 20 year time horizon, if it is that will be a truly dismal 2 decades.


What TimeLord said :)
Also - this is the inflation-protected part of my bond space (in addition to serving as a 2nd-tier emergency fund which EE bonds do not) - if inflation picks up - ibonds will outperform ee bonds even if held for a full 20 years.


EE bonds CAN have a place in investors portfolios, just not for your portfolio :wink: . That doesn't make them a poor investment, it just means it doesn't meet your suitability criteria. For those who seek a known and nominally stable ending value at exactly year 20, EE bonds can not be beat. The key work is "known" - most issuing banks today do not offer a 20 year CD, so that eliminates the "known" component. A 20 year Treasury note does not yield 3.53%, nor do zero coupon Treasuries. You have a hard time seeing it as a good investment because you are conditioned to receiving higher returns, that doesn't mean we many never have a poor 20 year period - just look at Japan as an example of what happened over the last 20 years return wise.



Can't imagine why someone would find something with a known nominal rate that has to be held for 20 years to be superior to something that has a known real rate that only has to be held for 5 years but can be held for 30 years. If you truly want known, then a known real rate would seem to be the way to go.


Someone who purchase an I-bond today receives a security whose combined rate is made up of two components; a real fixed rate of 0% and a variable inflation rate based on the CPI-U as published by Bureau of Labor Standards (bls.gov) of 2.76% for the next 6 months. After October 2017, in November 2017 they will then earn a composite rate of 1.95% - that is a fixed real rate of 0% and the variable inflation component. Where is the known real rate? The known real rate is 0%. Oh, I see, you are saying that inflation can be far higher than 3.53% when averaged over a twenty year period. So, what 20 year period can you point to where inflation published by BLS for CPI-U was greater than 3.53% annually, again, this isn't for a 5 year period or a ten year period, but a 20 year period. We have a central bank which is targeting 2% inflation and after 7 years just managed to get there for a small period of time (a few months) but now is showing signs of it slipping again. Still, you could make the argument why anyone would buy a 30 year nominal bond and yet, we have takers every single day, hour and minute buying and selling billions, upon billions or just holding the debt. Crazy, right, they must all be crazy, including those who own the Total Bond Index? or 31 other flavors of taxable bond funds (like a Basking Robbins ice cream store). They buy it for the same reason - they want a known floor, non-inflation adjusted or they believe that inflation is going to remain low in a 1.5%-3% growth economy (they read the recent Vanguard research or other demographic research that indicates declining rates of growth).
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Angst
Posts: 1570
Joined: Sat Jun 09, 2007 11:31 am
Location: St Louis, MO

Re: I bonds May 2017

Postby Angst » Wed Apr 19, 2017 3:23 pm

As far as I Bonds go, I have enough of them for my needs. Only if the fixed rate went positive would I buy, and I'd sell my remaining 0% I Bonds. But I expect the fixed rate to stay at zero for now, so if I wanted to buy I Bonds this year, I'd buy now to get the 2.76%, or I'd wait until November to see if fixed rates might go up then. For long-term purposes, I maintain and continue to build a tax-deferred LMP of 30-yr TIPS, which are far superior to I Bonds for this purpose.

As far as the side-discussion on EE Bonds goes...

In the post QE1 and QE2 world, predictions of imminent, across the board increases in interest rates (not simply in Fed targets) have been legion, both here in the forum and in the news in general, but reality has yet to cooperate with expectations. And ever since 2010, I've annually gone over the pros and cons in my mind of buying a rung of EE bonds to add to my overall FI (Fixed Income) portfolio, and so far, every year since then I've purchased them. (I've also purchased some CDs.) I've already done so this year as well, not with a lot of confidence, but enough. And I recognize that I might decide to sell this 2017 tranche in the next couple years if I sense/see that rates are really going to go up... but as time passes, the YTM (Yield to Maturity) of these 2017 EE Bonds will more likely trump any prediction or tradable reality I find for the future. In another thread, I posted the following which I think is relevant to the discussion:

In another post, Angst wrote:
Given the spreadsheet below, it would be quite difficult to justify selling the EE Bonds I bought in 2010.
For those purchased in 2010, they now have a 13 yr YTM of 5.48%.

Moving up in time...
For those I purchased in 2011, they have a 14 yr YTM of 5.08%
For those I purchased in 2012, they have a 15 yr YTM of 4.73%

So it's always been something of a leap of faith for my recent purchases, but given that I manage my entire FI portfolio rather than rely on one fund like TBM, it's been easy to justify my EE bond purchases given the prevailing rates. And the yield curve continues to look good for EE Bonds from my perspective. I refuse to hold my breath for the long-predicted increase in rates.

Scroll down and ride the asymptote.

Code: Select all

Year  YTM   Yrs left
1     3.53%    20
2     3.72%    19
3     3.93%    18
4     4.16%    17
5     4.43%    16
6     4.73%    15
7     5.08%    14
8     5.48%    13
9     5.95%    12
10    6.50%    11
11    7.18%    10
12    8.01%     9
13    9.05%     8
14   10.41%     7
15   12.25%     6
16   14.87%     5
17   18.92%     4
18   25.99%     3
19   42.42%     2
20  100.00%     1

patrick
Posts: 1409
Joined: Fri Sep 04, 2009 3:39 am
Location: Mega-City One

Re: I bonds May 2017

Postby patrick » Wed Apr 19, 2017 7:04 pm

Grt2bOutdoors wrote:Oh, I see, you are saying that inflation can be far higher than 3.53% when averaged over a twenty year period. So, what 20 year period can you point to where inflation published by BLS for CPI-U was greater than 3.53% annually, again, this isn't for a 5 year period or a ten year period, but a 20 year period.


What really matters is the next 20 years, but if you are looking for a past period, that is easy -- CPI was greater than 3.53% annually from January 1980 through January 2000.

Grt2bOutdoors
Posts: 15842
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: I bonds May 2017

Postby Grt2bOutdoors » Wed Apr 19, 2017 7:09 pm

patrick wrote:
Grt2bOutdoors wrote:Oh, I see, you are saying that inflation can be far higher than 3.53% when averaged over a twenty year period. So, what 20 year period can you point to where inflation published by BLS for CPI-U was greater than 3.53% annually, again, this isn't for a 5 year period or a ten year period, but a 20 year period.


What really matters is the next 20 years, but if you are looking for a past period, that is easy -- CPI was greater than 3.53% annually from January 1980 through January 2000.


And the maturity and rate of return was higher from 1980 to early 90's. Exactly, what matters is next 20 years.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Wed Apr 19, 2017 9:41 pm

Grt2bOutdoors wrote:I would buy today or by the end of April 29th instead of waiting to see if the fixed rate might be 0.10% or not.


After reading through this thread I bought 60% tonight and will buy the rest May 1. I am sure in the big picture it will be meaningless but somehow it made me feel better to take action and get the current rate for 6 months on some of this year's allotment. :oops:
Run, You Clever Boy!

majiaknight
Posts: 18
Joined: Tue Jan 26, 2016 2:55 pm

Re: I bonds May 2017

Postby majiaknight » Thu Apr 20, 2017 12:33 am

TheTimeLord wrote:Can't imagine why someone would find something with a known nominal rate that has to be held for 20 years to be superior to something that has a known real rate that only has to be held for 5 years but can be held for 30 years. If you truly want known, then a known real rate would seem to be the way to go.


I bought EE but not iBond because I actually got the opposite conclusion like the above.

I had a hard time to understand why people buy ibond w/ 0% fixed rate (in recent years) which means when you redeem it, you will be guaranteed to lose money after paying fed tax for the interests (=inflation). :confused

At least holding EE for 20Y (w/ fixed 3.5%) I may have a chance to outperform the inflation. :greedy

Anyway, max EE or iBond is $10K/Y which is still a small portion of my annual investment. As I have enough emergency fund in 5%-6% (like Mango, Insight, Netspend, etc which may change anytime) savings, I don't see a place for iBond in my portfolio.

Dude2
Posts: 571
Joined: Fri Jun 08, 2007 3:40 pm

Re: I bonds May 2017

Postby Dude2 » Thu Apr 20, 2017 8:52 am

majiaknight wrote:I had a hard time to understand why people buy ibond w/ 0% fixed rate (in recent years) which means when you redeem it, you will be guaranteed to lose money after paying fed tax for the interests (=inflation). :confused

But aren't there very, very few investments where that is not true? Most everything is subject to tax, and generally it isn't discussed in the same breath as what the rate of return on the investment was. IOW, it isn't an argument against 0% fixed rate IBonds, per se, because almost all investments are subject to tax. Unfortunately, it is difficult to compare investments post-tax because everybody's situation is different. (But you make a good point in comparison to EE bonds beating inflation. I guess you roll the dice and see what comes...)

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Thu Apr 20, 2017 10:10 am

majiaknight wrote:
TheTimeLord wrote:Can't imagine why someone would find something with a known nominal rate that has to be held for 20 years to be superior to something that has a known real rate that only has to be held for 5 years but can be held for 30 years. If you truly want known, then a known real rate would seem to be the way to go.


I bought EE but not iBond because I actually got the opposite conclusion like the above.

I had a hard time to understand why people buy ibond w/ 0% fixed rate (in recent years) which means when you redeem it, you will be guaranteed to lose money after paying fed tax for the interests (=inflation). :confused

At least holding EE for 20Y (w/ fixed 3.5%) I may have a chance to outperform the inflation. :greedy

Anyway, max EE or iBond is $10K/Y which is still a small portion of my annual investment. As I have enough emergency fund in 5%-6% (like Mango, Insight, Netspend, etc which may change anytime) savings, I don't see a place for iBond in my portfolio.


Of course I can redeem an I Bond in a year with minimum penalty and in 5 years with none and EE Bonds when purchased with the expectation of a 3.53% nominal return have an enormous penalty if redeemed in the first 19 years 364 days of ownership. I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?

My use of I Bonds is straightforward. They function as both liability matching and an emergency fund. I have 10+ years of expenses set aside to cover me from retirement to FRA and SS. My goal is to convert all those assets eventually to either I-Bonds of individual TIPS match up to the liabilities of some future month. Currently these savings consist of Money Markets, CDs, Bond Funds, Individual TIPS and I Bonds. I value these years and have saved enough to enjoy them, the biggest danger I face would be runaway inflation.
Run, You Clever Boy!

Angst
Posts: 1570
Joined: Sat Jun 09, 2007 11:31 am
Location: St Louis, MO

Re: I bonds May 2017

Postby Angst » Thu Apr 20, 2017 10:26 am

Dude2 wrote:
majiaknight wrote:I had a hard time to understand why people buy ibond w/ 0% fixed rate (in recent years) which means when you redeem it, you will be guaranteed to lose money after paying fed tax for the interests (=inflation). :confused

[snip...] (But you make a good point in comparison to EE bonds beating inflation. I guess you roll the dice and see what comes...)

I think the following is fairly obvious, but maybe it's worth reminding oneself:

With respect to the risk of inflation, except for I Bonds and TIPS, we're rolling the dice with essentially everything else; that's including stocks, bonds, CD's, real estate, gold, commodities, salary... even TIPS funds. None of these is immune to inflation in the way individual TIPS and I Bonds are.

aristotelian
Posts: 1253
Joined: Wed Jan 11, 2017 8:05 pm

Re: I bonds May 2017

Postby aristotelian » Thu Apr 20, 2017 10:29 am

TheTimeLord wrote:
Of course I can redeem an I Bond in a year with minimum penalty and in 5 years with none and EE Bonds when purchased with the expectation of a 3.53% nominal return have an enormous penalty if redeemed in the first 19 years 364 days of ownership. I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?


EE Bonds can be good for someone who does not have a 401K, needs to hold bonds in taxable, and is saving for retirement rather than intermediate term. Keep in mind as well that they earn a variable rate and have historically earned as much as 3.70%. The current 0.10% is historically low. It is not necessarily "all or nothing" to redeem early.

Angst
Posts: 1570
Joined: Sat Jun 09, 2007 11:31 am
Location: St Louis, MO

Re: I bonds May 2017

Postby Angst » Thu Apr 20, 2017 10:42 am

TheTimeLord wrote:I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?

If you hold any portion of your fixed income in a fund like TBM, you're already making this kind of "commitment" over and over again. Safe, govt bond funds buy bonds with yields like what you see in the Treasury yield curve. Depending on the fund, they're held to maturity or rolled over when they fall out of a certain range of maturity, but it's a similar "commitment", if not quite as draconian. If you're "rolling your own" fixed income portfolio, to some degree at least, you may end up locking in undesirable rates at certain points in time. But if you were given the choice of filling the 20-yr rung of your own "roll your own" fixed income portfolio with either a 3.53% "zero coupon" EE Bond or a 2.59% "hypothetical 20-yr Treasury Bond" (see current yield curve), which would you choose?

[Edit] I should add that I am very much a "total return" kind of investor. I have no need or desire for the periodic fixed income interest payments or stock dividends that so many people seem to demand. I look to my entire portfolio for my returns.

User avatar
TheTimeLord
Posts: 3771
Joined: Fri Jul 26, 2013 2:05 pm

Re: I bonds May 2017

Postby TheTimeLord » Thu Apr 20, 2017 11:48 am

aristotelian wrote:
TheTimeLord wrote:
Of course I can redeem an I Bond in a year with minimum penalty and in 5 years with none and EE Bonds when purchased with the expectation of a 3.53% nominal return have an enormous penalty if redeemed in the first 19 years 364 days of ownership. I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?


EE Bonds can be good for someone who does not have a 401K, needs to hold bonds in taxable, and is saving for retirement rather than intermediate term. Keep in mind as well that they earn a variable rate and have historically earned as much as 3.70%. The current 0.10% is historically low. It is not necessarily "all or nothing" to redeem early.


Going from an expected 3.53% to 0.1% is going to feel like all or nothing.
Run, You Clever Boy!

protagonist
Posts: 4567
Joined: Sun Dec 26, 2010 12:47 pm

Re: I bonds May 2017

Postby protagonist » Thu Apr 20, 2017 1:25 pm

TheTimeLord wrote:
aristotelian wrote:
TheTimeLord wrote:
Of course I can redeem an I Bond in a year with minimum penalty and in 5 years with none and EE Bonds when purchased with the expectation of a 3.53% nominal return have an enormous penalty if redeemed in the first 19 years 364 days of ownership. I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?


EE Bonds can be good for someone who does not have a 401K, needs to hold bonds in taxable, and is saving for retirement rather than intermediate term. Keep in mind as well that they earn a variable rate and have historically earned as much as 3.70%. The current 0.10% is historically low. It is not necessarily "all or nothing" to redeem early.


Going from an expected 3.53% to 0.1% is going to feel like all or nothing.


Assuming you have enough to happily survive retirement, the only thing that you need to fear is if inflation eats away your assets.
If 0.1% beats inflation you will be happy.
If 3.53% does not over 20 years, or if you need or want the money before then, you will be unhappy.
It's as simple as that.

FactualFran
Posts: 291
Joined: Sat Feb 21, 2015 2:29 pm

Re: I bonds May 2017

Postby FactualFran » Thu Apr 20, 2017 2:33 pm

TheTimeLord wrote:Of course I can redeem an I Bond in a year with minimum penalty and in 5 years with none and EE Bonds when purchased with the expectation of a 3.53% nominal return have an enormous penalty if redeemed in the first 19 years 364 days of ownership. I just can't get past being stuck in an investment where my return would drop from 3.53% to 0.10% unless held 20 years or more. Seems like only a young person could make such a commitment but it seems and odd commitment to me for someone who is young in the accumulation phase and looking at a 20+ year time horizon. I wish someone would explain the logic to me, or do people who invest in Res not concern themselves with the price they will pay if they need liquidity?

If I needed liquidity during the month before the redemption value of an EE-Bond became twice its purchase price, then I suspect that I would be able to get a short-term loan at an interest rate less than the about 94% increase in the redemption value of the EE-Bond during the month.


Return to “Investing - Help with Personal Investments”