Will I ever sell Ibonds from 2001 - 3% fixed

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randomguy
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by randomguy » Fri Aug 31, 2018 3:48 pm

AlphaLess wrote:
Fri Aug 31, 2018 9:16 am
knpstr wrote:
Thu Aug 30, 2018 8:51 pm
I have some shares of VTSAX that have an annualized 10% return for the last 10 years. I'd trade in those 3% Ibonds for some VTSAX.

Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares. :moneybag
Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Nah 95% of the time you should buy stocks. And 5% bonds. And yes this about the odds😁 of couese it is a bit hard to know if you are on the 5% case or 95% case.

These bonds are great for bonds (though the 7% or so 30 year bond you could have bought might have done better) but in the end 3% real over 30 years is a horrible return if you can take risk

Grt2bOutdoors
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Grt2bOutdoors » Fri Aug 31, 2018 3:51 pm

knpstr wrote:
Fri Aug 31, 2018 2:39 pm
Grt2bOutdoors wrote:
Fri Aug 31, 2018 2:01 pm
knpstr wrote:
Fri Aug 31, 2018 1:53 pm
Grt2bOutdoors wrote:
Fri Aug 31, 2018 1:39 pm
I bonds were not in existence 30,40,50 years ago so that comparison is out.
I know the future cannot be accurately predicted, that being said, I'm curious: Would you think it is likely that the S&P 500 outperforms I-bonds over the next 30, 40, 50 years?
Maybe. My question to you though is do you think in a financial crisis bankrupt companies or those with permanent impairment of value leading to a deflationary environment will pay for the roof over your head, food on table, clothes on back like that of a AAA rated US government nominal issue?

The objective of an investor is to have enough capital to see another day. If you want to see what happens to speculators, go to Vegas or the horse track. Never risk more than you can afford to lose.
Maybe. Maybe that previously AAA rated US government nominal issue defaults when that crisis happens.

I guess you have no money in equity index funds as you deem that as pure speculation equivalent to Vegas or the horse track. Oh, and to reiterate yet again, we're talking about money that we can "afford to lose" if it "may be kept in a lock box" or "more likely passed down to heirs", this is money that we aren't planning to use in our lifetime, so we are investing for the long term.

I think it is more likely that equities outperform I-bonds in the long-term. It is okay that you think I-bonds will likely outperform equities in the long-term. We can agree to disagree. :beer
The US Government defaults and you and everyone else will have much bigger problems.

You asked a question, I answered it. I asked you a question, then you pull out the sarcasm.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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knpstr
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 4:54 pm

Grt2bOutdoors wrote:
Fri Aug 31, 2018 3:51 pm
knpstr wrote:
Fri Aug 31, 2018 2:39 pm
Grt2bOutdoors wrote:
Fri Aug 31, 2018 2:01 pm
knpstr wrote:
Fri Aug 31, 2018 1:53 pm
Grt2bOutdoors wrote:
Fri Aug 31, 2018 1:39 pm
I bonds were not in existence 30,40,50 years ago so that comparison is out.
I know the future cannot be accurately predicted, that being said, I'm curious: Would you think it is likely that the S&P 500 outperforms I-bonds over the next 30, 40, 50 years?
Maybe. My question to you though is do you think in a financial crisis bankrupt companies or those with permanent impairment of value leading to a deflationary environment will pay for the roof over your head, food on table, clothes on back like that of a AAA rated US government nominal issue?

The objective of an investor is to have enough capital to see another day. If you want to see what happens to speculators, go to Vegas or the horse track. Never risk more than you can afford to lose.
Maybe. Maybe that previously AAA rated US government nominal issue defaults when that crisis happens.

I guess you have no money in equity index funds as you deem that as pure speculation equivalent to Vegas or the horse track. Oh, and to reiterate yet again, we're talking about money that we can "afford to lose" if it "may be kept in a lock box" or "more likely passed down to heirs", this is money that we aren't planning to use in our lifetime, so we are investing for the long term.

I think it is more likely that equities outperform I-bonds in the long-term. It is okay that you think I-bonds will likely outperform equities in the long-term. We can agree to disagree. :beer
The US Government defaults and you and everyone else will have much bigger problems.

You asked a question, I answered it. I asked you a question, then you pull out the sarcasm.
I wasn't being sarcastic. I answered your question. I just wanted to be sure I understood you correctly that you think I-bonds are likely a better long term investment than equities, since I find that position surprising. That's all.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

Grt2bOutdoors
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Grt2bOutdoors » Fri Aug 31, 2018 5:04 pm

The use of maybe doesn’t suggest I believe I bonds will outperform or that equities will outperform. It means “it’s anyones guess”.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Blueskies123
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Blueskies123 » Fri Aug 31, 2018 5:14 pm

Grt2bOutdoors wrote:
Thu Aug 30, 2018 8:06 pm
Blueskies123 wrote:
Thu Aug 30, 2018 6:23 pm
30 years thanks. I will enjoy the money when I am 77. Heck of a tax bill though.
I own quite a few of the same ones - plan on holding to maturity, those were a gift and I’m glad I took Uncle Sam up on it. You will be retired by then, I will likely still be working. Ironic, bought them in a low tax bracket-don’t think my tax bracket will ever be that low again, still I’ll take the gift.

Like your Quinn picture. Classic movie.
Yep, aka Rober Shaw, two of the best scenes ever:
https://www.youtube.com/watch?v=u9S41Kplsbs
https://www.youtube.com/watch?v=U4lcSH-FzhA

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knpstr
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 5:20 pm

Grt2bOutdoors wrote:
Fri Aug 31, 2018 5:04 pm
The use of maybe doesn’t suggest I believe I bonds will outperform or that equities will outperform. It means “it’s anyones guess”.
Right, I believe I gave that disclaimer before asking your opinion when I stated: "I know the future cannot be accurately predicted, that being said, I'm curious:" -- before asking YOUR opinion of what YOU thought was more likely to happen.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by AlphaLess » Fri Aug 31, 2018 7:05 pm

knpstr wrote:
Fri Aug 31, 2018 12:07 pm
AlphaLess wrote:
Fri Aug 31, 2018 9:16 am
knpstr wrote:
Thu Aug 30, 2018 8:51 pm
I have some shares of VTSAX that have an annualized 10% return for the last 10 years. I'd trade in those 3% Ibonds for some VTSAX.

Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares. :moneybag
Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Interesting opinion you have. That over the long run Ibonds are a better investment than stocks.
Thanks for finding my opinion interesting, I appreciate that greatly!

However, your second sentence is something that: (a) I did not say, (b) that I don't necessarily agree with.

I only said that selling ALL ones ibonds RIGHT now to buy all stocks is terrible advice.
That is the only opinion I expressed.

I also said something hypothetical: that if you are offering a time machine, there is a lot of things I can do, such as timing the market (which, if working well, is a FAR better investment strategy than your 100% stocks).

A significantly crappy timing strategy, but one that has at least some (weak) benefit of the future, can beat your 100% stock strategy easily.
"You can get more with a kind word and a gun than with just a kind word." George Washington

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by AlphaLess » Fri Aug 31, 2018 7:07 pm

UncleBogle wrote:
Fri Aug 31, 2018 11:51 am
AlphaLess wrote:
Fri Aug 31, 2018 9:07 am
- iBonds are tax free while you hold them,
- at redemption time, you pay federal taxes on the growth, but not state taxes.
This makes me wonder if it would be a good idea to pass I Bonds on as an inheritance(as mentioned above) particularly to a youth, since they will have no taxes, or a low tax bracket if they redeem them. This is of course provided that there is no inheritance tax.
When you pass something as inheritance, and it is in a modest amount, there is no estate tax.
Also, heirs get the benefit of the step-up basis.
But I am not sure how that works with iBonds.
"You can get more with a kind word and a gun than with just a kind word." George Washington

Gill
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Gill » Fri Aug 31, 2018 7:19 pm

AlphaLess wrote:
Fri Aug 31, 2018 7:07 pm
UncleBogle wrote:
Fri Aug 31, 2018 11:51 am
AlphaLess wrote:
Fri Aug 31, 2018 9:07 am
- iBonds are tax free while you hold them,
- at redemption time, you pay federal taxes on the growth, but not state taxes.
This makes me wonder if it would be a good idea to pass I Bonds on as an inheritance(as mentioned above) particularly to a youth, since they will have no taxes, or a low tax bracket if they redeem them. This is of course provided that there is no inheritance tax.
When you pass something as inheritance (and it is in a modest amount), heirs get the benefit of the step-up basis.
But I am not sure how that works with iBonds.
No! No step up in basis for I-Bonds.
Gill

JBTX
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by JBTX » Fri Aug 31, 2018 7:25 pm

AlphaLess wrote:
Fri Aug 31, 2018 7:05 pm
knpstr wrote:
Fri Aug 31, 2018 12:07 pm
AlphaLess wrote:
Fri Aug 31, 2018 9:16 am
knpstr wrote:
Thu Aug 30, 2018 8:51 pm
I have some shares of VTSAX that have an annualized 10% return for the last 10 years. I'd trade in those 3% Ibonds for some VTSAX.

Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares. :moneybag
Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Interesting opinion you have. That over the long run Ibonds are a better investment than stocks.
Thanks for finding my opinion interesting, I appreciate that greatly!

However, your second sentence is something that: (a) I did not say, (b) that I don't necessarily agree with.

I only said that selling ALL ones ibonds RIGHT now to buy all stocks is terrible advice.
That is the only opinion I expressed.

I also said something hypothetical: that if you are offering a time machine, there is a lot of things I can do, such as timing the market (which, if working well, is a FAR better investment strategy than your 100% stocks).

A significantly crappy timing strategy, but one that has at least some (weak) benefit of the future, can beat your 100% stock strategy easily.
He's been doing a lot of that in this thread. He is clearly trolling.

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Kenkat
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Kenkat » Fri Aug 31, 2018 7:33 pm

If you are going to own some bonds, then 3%+ fixed I-bonds are pretty good ones to own. Bonds have never been about maximizing return; bonds are about achieving a risk-return ratio that you can live with over the long run.

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knpstr
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 7:51 pm

AlphaLess wrote:
Fri Aug 31, 2018 7:05 pm
knpstr wrote:
Fri Aug 31, 2018 12:07 pm
Interesting opinion you have. That over the long run Ibonds are a better investment than stocks.
However, your second sentence is something that: (a) I did not say, (b) that I don't necessarily agree with.

I only said that selling ALL ones ibonds RIGHT now to buy all stocks is terrible advice.
That is the only opinion I expressed.
You contradicted yourself.

You think it is "terrible advice" (with long term money) to buy/hold stocks over I-bonds right now, yet you don't agree that I-bonds are better long-term investments than stocks?!
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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knpstr
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 7:55 pm

JBTX wrote:
Fri Aug 31, 2018 7:25 pm
He's been doing a lot of that in this thread. He is clearly trolling.
No not trolling. Pointing out contradictions being made.

My only position is that stocks are likely better investments than I-bonds for the very long term 30+ years. I'm just engaging with people who disagree with that. I'm very interested to see why they think that is "terrible advice" for essentially "legacy money".
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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knpstr
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 8:01 pm

JBTX wrote:
Fri Aug 31, 2018 7:25 pm
AlphaLess wrote:
Fri Aug 31, 2018 7:05 pm
knpstr wrote:
Fri Aug 31, 2018 12:07 pm
AlphaLess wrote:
Fri Aug 31, 2018 9:16 am
knpstr wrote:
Thu Aug 30, 2018 8:51 pm
I have some shares of VTSAX that have an annualized 10% return for the last 10 years. I'd trade in those 3% Ibonds for some VTSAX.

Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares. :moneybag
Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Interesting opinion you have. That over the long run Ibonds are a better investment than stocks.
Thanks for finding my opinion interesting, I appreciate that greatly!

However, your second sentence is something that: (a) I did not say, (b) that I don't necessarily agree with.

I only said that selling ALL ones ibonds RIGHT now to buy all stocks is terrible advice.
That is the only opinion I expressed.

I also said something hypothetical: that if you are offering a time machine, there is a lot of things I can do, such as timing the market (which, if working well, is a FAR better investment strategy than your 100% stocks).

A significantly crappy timing strategy, but one that has at least some (weak) benefit of the future, can beat your 100% stock strategy easily.
He's been doing a lot of that in this thread. He is clearly trolling.
He clearly said what he claims he did not say, as you demonstrated above -- following the highlights.
Thanks for linking all of that up, it shows the contradiction being made.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

bhsince87
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by bhsince87 » Fri Aug 31, 2018 8:21 pm

JBTX wrote:
Fri Aug 31, 2018 1:55 pm
knpstr wrote:
Fri Aug 31, 2018 1:22 pm
JBTX wrote:
Fri Aug 31, 2018 1:19 pm
knpstr wrote:
Fri Aug 31, 2018 12:31 pm
JBTX wrote:
Fri Aug 31, 2018 9:41 am


Depends on when you buy them, the type and duration. If you had bought 30 year zero coupon treasuries every year, sold them a year later, and rolled the proceeds into new 30 year zeros, and done that the last 35 yeare you would have easily beaten stocks. Of course, nobody actually does that.

I'm not sure how one can say an investment with an entirely different risk profile is "terrible" compared to a higher risk/return investment. It is kind of apples and oranges.
If using that method indeed makes it "easy to beat the market" why don't people actually do it? You said "of course, nobody actually does that", why not?

Because the "risk" people talk about with stocks is volatility. When you are investing money for your heirs you may have a 50+ year time horizon, volatility is irrelevant. So the typical "risk" is greatly diminished with such long term money.

It would be interesting to see a chart of someone invest $10K per year in I-bonds vs. DJIA or S&P 500 for the last 30,40,50 years. We have a LOT of people saying that people holding the I-bonds would have more money. I find that hard to believe.
No, nobody is saying that. :oops:
Weird -- because my initial post suggested for very long term money it would be better suited to be in VTSAX vs I-bonds and quite a few people disagreed with my post as you can see above.
The discussion was for those lucky ones who happen to hold ibonds from around 2000 that paid 3% plus inflation, which currently would be 5-6% nominal return. In today's low interest rate environment a 5-6% practically risk free return is outstanding. Of course people want to hold on to those. That doesn't mean that people are saying they will beat stocks over 30+ years. Most people want a premium on returns for risk assumed.

Also most people don't want to put 100% of their investments in stocks. Some have partial investment time frames of 10 years or less. Plus most people want to keep an emergency fund and perhaps additional liquidity. Ibonds work well for that. Stocks not so much.

If you want to put 100% of your investments and emergency fund in stocks go ahead. Keep in touch and let us know how that works out.

True, and good!

But it should also be noted that standard 30 year Treasuries bought back then would return 6-6.5% nominal. Depending on your tax situation, that could be even better.

With the added benefits of increased liquidity, no penalty for early redemption, and no limit on purchase amount.

Edited to add: you could also sell the 30 year Treasury and possibly get a capital gain, which could be taxed more favorably than interest.
Last edited by bhsince87 on Fri Aug 31, 2018 8:44 pm, edited 1 time in total.
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JBTX
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by JBTX » Fri Aug 31, 2018 8:24 pm

knpstr wrote:
Fri Aug 31, 2018 7:55 pm
JBTX wrote:
Fri Aug 31, 2018 7:25 pm
He's been doing a lot of that in this thread. He is clearly trolling.
No not trolling. Pointing out contradictions being made.

My only position is that stocks are likely better investments than I-bonds for the very long term 30+ years. I'm just engaging with people who disagree with that. I'm very interested to see why they think that is "terrible advice" for essentially "legacy money".
Listen, if you want to put all of your money in stocks, and are very risk tolerant, that is fine. However, most people have some level of risk aversion, implicitly have a risk and return tradeoff curve, and believe in the benefits of diversification.

Nobody has specifically said that ibonds are better than stocks long term. Nobody has even said 3% ibonds are better than stocks long term. But you choose to keep quoting people as saying that. Please stop distorting what we are trying to say. Misquoting people and/ or quoting them out of context intentionally is trolling

Fact is nobody knows. A 3% plus inflation return actually could beat stocks over the next 20 years. That is a fairly rare occurrence (less than 10%), but at high CAPE10's, the probability of it happening is greater than normal

https://www.crestmontresearch.com/docs/ ... eturns.pdf

In the graph above, the starting average PE10 was over 18 only 20% of the time. For those two deciles where the average starting point was over 18, the 20 year returns were 5.2% and 7.8%. The current PE 10 is in 33.3. Make of that what you will.

Fact is, most people prefer some level of diversification using bonds, and given that, ibonds that pay 3% above current market rates are relatively attractive.

If you really don't value asset class diversification over the long term, and instead prefer to be 100% in assets that tend to give the highest long term return, seems to me you should be 100% in small cap value.

JBTX
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by JBTX » Fri Aug 31, 2018 8:46 pm

bhsince87 wrote:
Fri Aug 31, 2018 8:21 pm
JBTX wrote:
Fri Aug 31, 2018 1:55 pm
knpstr wrote:
Fri Aug 31, 2018 1:22 pm
JBTX wrote:
Fri Aug 31, 2018 1:19 pm
knpstr wrote:
Fri Aug 31, 2018 12:31 pm

If using that method indeed makes it "easy to beat the market" why don't people actually do it? You said "of course, nobody actually does that", why not?

Because the "risk" people talk about with stocks is volatility. When you are investing money for your heirs you may have a 50+ year time horizon, volatility is irrelevant. So the typical "risk" is greatly diminished with such long term money.

It would be interesting to see a chart of someone invest $10K per year in I-bonds vs. DJIA or S&P 500 for the last 30,40,50 years. We have a LOT of people saying that people holding the I-bonds would have more money. I find that hard to believe.
No, nobody is saying that. :oops:
Weird -- because my initial post suggested for very long term money it would be better suited to be in VTSAX vs I-bonds and quite a few people disagreed with my post as you can see above.
The discussion was for those lucky ones who happen to hold ibonds from around 2000 that paid 3% plus inflation, which currently would be 5-6% nominal return. In today's low interest rate environment a 5-6% practically risk free return is outstanding. Of course people want to hold on to those. That doesn't mean that people are saying they will beat stocks over 30+ years. Most people want a premium on returns for risk assumed.

Also most people don't want to put 100% of their investments in stocks. Some have partial investment time frames of 10 years or less. Plus most people want to keep an emergency fund and perhaps additional liquidity. Ibonds work well for that. Stocks not so much.

If you want to put 100% of your investments and emergency fund in stocks go ahead. Keep in touch and let us know how that works out.

True, and good!

But it should also be noted that standard 30 year Treasuries bought back then would return 6-6.5% nominal.
Depending on your tax situation, that could be even better.

With the added benefits of increased liquidity, no penalty for early redemption, and no limit on purchase amount.
While true (and I'm taking your word on the returns) a 30 year treasury is not even close to a risk free investment. It's year to year price and returns can vary substantially. Going forward, those 30 year treasuries are now priced to yield somewhere in the 3% ballpark. Your 3% ibonds are going to yield 5-6%.

Ibonds are even better than a risk free investment. If the real rate goes down, you are locked into the higher ibond fixed rate. If the real rate goes up, you can sell them and buy ibonds at the higher rates. I would assume this is why purchases are capped. If they weren't, there would be little to keep people from piling as much as they can into ibonds - eventually locking into real returns above market rate.

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 8:59 pm

JBTX wrote:
Fri Aug 31, 2018 8:24 pm
knpstr wrote:
Fri Aug 31, 2018 7:55 pm
JBTX wrote:
Fri Aug 31, 2018 7:25 pm
He's been doing a lot of that in this thread. He is clearly trolling.
No not trolling. Pointing out contradictions being made.

My only position is that stocks are likely better investments than I-bonds for the very long term 30+ years. I'm just engaging with people who disagree with that. I'm very interested to see why they think that is "terrible advice" for essentially "legacy money".
Listen, if you want to put all of your money in stocks, and are very risk tolerant, that is fine. However, most people have some level of risk aversion, implicitly have a risk and return tradeoff curve, and believe in the benefits of diversification.

Nobody has specifically said that ibonds are better than stocks long term. Nobody has even said 3% ibonds are better than stocks long term. But you choose to keep quoting people as saying that. Please stop distorting what we are trying to say. Misquoting people and/ or quoting them out of context intentionally is trolling

Fact is nobody knows. A 3% plus inflation return actually could beat stocks over the next 20 years. That is a fairly rare occurrence (less than 10%), but at high CAPE10's, the probability of it happening is greater than normal

https://www.crestmontresearch.com/docs/ ... eturns.pdf

In the graph above, the starting average PE10 was over 18 only 20% of the time. For those two deciles where the average starting point was over 18, the 20 year returns were 5.2% and 7.8%. The current PE 10 is in 33.3. Make of that what you will.

Fact is, most people prefer some level of diversification using bonds, and given that, ibonds that pay 3% above current market rates are relatively attractive.

If you really don't value asset class diversification over the long term, and instead prefer to be 100% in assets that tend to give the highest long term return, seems to me you should be 100% in small cap value.
Arguing against putting 100% of all of your money into stocks is a straw man -- I did not make that comment here. I have reiterated that I did not make that comment here. Are you trolling?

MY position was: for long-term money, VTSAX is likely better than I-bonds.
OP wrote:..."I was thinking that these bonds might be the last thing I ever sell. More likely I will give them to the kids when I die..."
knpstr wrote:Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares
Alphaless wrote:Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Gill wrote:Terrible advice for the reasons indicated by others
How is "nobody" saying that I-bonds are better long-term investment than VTSAX?
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

ThriftyPhD
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by ThriftyPhD » Fri Aug 31, 2018 9:18 pm

knpstr wrote:
Fri Aug 31, 2018 8:59 pm
JBTX wrote:
Fri Aug 31, 2018 8:24 pm
knpstr wrote:
Fri Aug 31, 2018 7:55 pm
JBTX wrote:
Fri Aug 31, 2018 7:25 pm
He's been doing a lot of that in this thread. He is clearly trolling.
No not trolling. Pointing out contradictions being made.

My only position is that stocks are likely better investments than I-bonds for the very long term 30+ years. I'm just engaging with people who disagree with that. I'm very interested to see why they think that is "terrible advice" for essentially "legacy money".
Listen, if you want to put all of your money in stocks, and are very risk tolerant, that is fine. However, most people have some level of risk aversion, implicitly have a risk and return tradeoff curve, and believe in the benefits of diversification.

Nobody has specifically said that ibonds are better than stocks long term. Nobody has even said 3% ibonds are better than stocks long term. But you choose to keep quoting people as saying that. Please stop distorting what we are trying to say. Misquoting people and/ or quoting them out of context intentionally is trolling

Fact is nobody knows. A 3% plus inflation return actually could beat stocks over the next 20 years. That is a fairly rare occurrence (less than 10%), but at high CAPE10's, the probability of it happening is greater than normal

https://www.crestmontresearch.com/docs/ ... eturns.pdf

In the graph above, the starting average PE10 was over 18 only 20% of the time. For those two deciles where the average starting point was over 18, the 20 year returns were 5.2% and 7.8%. The current PE 10 is in 33.3. Make of that what you will.

Fact is, most people prefer some level of diversification using bonds, and given that, ibonds that pay 3% above current market rates are relatively attractive.

If you really don't value asset class diversification over the long term, and instead prefer to be 100% in assets that tend to give the highest long term return, seems to me you should be 100% in small cap value.
Arguing against putting 100% of all of your money into stocks is a straw man -- I did not make that comment here. I have reiterated that I did not make that comment here. Are you trolling?

MY position was: for long-term money, VTSAX is likely better than I-bonds.
OP wrote:..."I was thinking that these bonds might be the last thing I ever sell. More likely I will give them to the kids when I die..."
knpstr wrote:Bonds are a terrible long-term investment relative to equities. Trade in those Ibonds and "lock up" some VTSAX shares
Alphaless wrote:Fantastic advice if you can teleport me to March 2009 with your time machine.
Terrible advice for the other 95% of the time.
Gill wrote:Terrible advice for the reasons indicated by others
How is "nobody" saying that I-bonds are better long-term investment than VTSAX?
Because unless you're going to 100% equities, the 3% real I-bonds are likely better bonds than any other bond options you can buy today. And since you can't 'sell' the Ibonds on the open market where you would get a premium for the 3% real rate, but instead only redeem them, you would not be compensated for the high real rate when redeeming. Given their value over other bonds, selling them to buy VTSAX would mean you sold off all of your lesser bonds already, and are going to 100% stocks.

If you're not suggesting 100% of money into stocks, what bonds would you suggest keeping while selling the 3% real Ibonds?

"I was thinking that these bonds might be the last thing I ever sell. More likely I will give them to the kids when I die..." This states two things. The 3% real Ibonds are the best bonds the OP owns, and therefore are the last ones they would sell. Since the OP is not planning on running out of money, and will likely be leaving money to the kids, the 3% Ibonds would be in that money being passed on.

"MY position was: for long-term money, VTSAX is likely better than I-bonds. "

For long-term money, would a 1.2X levered VTSAX be better than 1X levered VTSAX? I believe the Kelly Criterion suggests ~1.5X margin. Or would you go higher?

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by knpstr » Fri Aug 31, 2018 9:29 pm

ThriftyPhD wrote:
Fri Aug 31, 2018 9:18 pm

Because unless you're going to 100% equities, the 3% real I-bonds are likely better bonds than any other bond options you can buy today. And since you can't 'sell' the Ibonds on the open market where you would get a premium for the 3% real rate, but instead only redeem them, you would not be compensated for the high real rate when redeeming. Given their value over other bonds, selling them to buy VTSAX would mean you sold off all of your lesser bonds already, and are going to 100% stocks.

If you're not suggesting 100% of money into stocks, what bonds would you suggest keeping while selling the 3% real Ibonds?

"I was thinking that these bonds might be the last thing I ever sell. More likely I will give them to the kids when I die..." This states two things. The 3% real Ibonds are the best bonds the OP owns, and therefore are the last ones they would sell. Since the OP is not planning on running out of money, and will likely be leaving money to the kids, the 3% Ibonds would be in that money being passed on.

"MY position was: for long-term money, VTSAX is likely better than I-bonds. "

For long-term money, would a 1.2X levered VTSAX be better than 1X levered VTSAX? I believe the Kelly Criterion suggests ~1.5X margin. Or would you go higher?
I-bonds may be the preferrable type of bonds -- I'm not arguing against that point. However, with money you have no intention of ever needing, or plan to pass to heirs -- I would not hold bonds, I would reduce my bonds amount and buy more VTSAX.

I would not use margin since that exposes you to volatility risk (specifically margin calls) -- whereas a 30,40,50 year time horizon volatility risk is nil.
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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by JBTX » Fri Aug 31, 2018 10:43 pm

knpstr wrote:
Fri Aug 31, 2018 9:29 pm
ThriftyPhD wrote:
Fri Aug 31, 2018 9:18 pm

Because unless you're going to 100% equities, the 3% real I-bonds are likely better bonds than any other bond options you can buy today. And since you can't 'sell' the Ibonds on the open market where you would get a premium for the 3% real rate, but instead only redeem them, you would not be compensated for the high real rate when redeeming. Given their value over other bonds, selling them to buy VTSAX would mean you sold off all of your lesser bonds already, and are going to 100% stocks.

If you're not suggesting 100% of money into stocks, what bonds would you suggest keeping while selling the 3% real Ibonds?

"I was thinking that these bonds might be the last thing I ever sell. More likely I will give them to the kids when I die..." This states two things. The 3% real Ibonds are the best bonds the OP owns, and therefore are the last ones they would sell. Since the OP is not planning on running out of money, and will likely be leaving money to the kids, the 3% Ibonds would be in that money being passed on.

"MY position was: for long-term money, VTSAX is likely better than I-bonds. "

For long-term money, would a 1.2X levered VTSAX be better than 1X levered VTSAX? I believe the Kelly Criterion suggests ~1.5X margin. Or would you go higher?
I-bonds may be the preferrable type of bonds -- I'm not arguing against that point. However, with money you have no intention of ever needing, or plan to pass to heirs -- I would not hold bonds, I would reduce my bonds amount and buy more VTSAX.

I would not use margin since that exposes you to volatility risk (specifically margin calls) -- whereas a 30,40,50 year time horizon volatility risk is nil.
If you assume the heirs will not be 100% in stocks, then passing on higher than market rate ibonds is passing on something they can't get. Anybody can buy stocks. (As a practical I don't know how and if ibonds can be inherited, and they are limited to 30 years).

You can take on more risk and potentially higher returns in ways other than margin. Small caps. NASDAQ.

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by smectym » Sat Sep 01, 2018 2:32 am

Seems like quite a few were instigated under the influence of this forum to load up on I bonds way back when...I plead guilty. Don’t have 7 figures in I bonds as one poster above claims, but high 6 yes. Viewed from today, after one of the greatest stock market rallies in world history (and not over yet)—no, I bonds haven’t outperformed equities. Still, the Risk-Adjusted Return is acceptable.

I note that the monthly interest these instruments earn for us by now, after a couple decades of compounding, is competitive with a robust social security check. Just one piece of the puzzle, but glad we bought when we did, and thanks to those who pointed out the opportunity 20 or so years ago

Smectym

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by UncleBogle » Sat Sep 01, 2018 7:16 am

Artsdoctor wrote:
Fri Aug 31, 2018 2:29 pm
UncleBogle wrote:
Fri Aug 31, 2018 11:51 am
AlphaLess wrote:
Fri Aug 31, 2018 9:07 am
- iBonds are tax free while you hold them,
- at redemption time, you pay federal taxes on the growth, but not state taxes.
This makes me wonder if it would be a good idea to pass I Bonds on as an inheritance(as mentioned above) particularly to a youth, since they will have no taxes, or a low tax bracket if they redeem them. This is of course provided that there is no inheritance tax.
I think that most kids would love to inherit I-bonds. Just remember that, unlike most investments, the basis is not reset at the time of death so the beneficiary will be paying taxes on everything since the purchase. Still, it'd be a welcome gift.
True, but if a 16 year old inherited the I-bonds, and then sold them, wouldn't their effective tax rate be 0%, provided that they sold just enough to be under the taxable amount for a yearly income?

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by donall » Sat Sep 01, 2018 7:45 am

Artsdoctor wrote:
Fri Aug 31, 2018 2:29 pm
UncleBogle wrote:
Fri Aug 31, 2018 11:51 am
AlphaLess wrote:
Fri Aug 31, 2018 9:07 am
- iBonds are tax free while you hold them,
- at redemption time, you pay federal taxes on the growth, but not state taxes.
This makes me wonder if it would be a good idea to pass I Bonds on as an inheritance(as mentioned above) particularly to a youth, since they will have no taxes, or a low tax bracket if they redeem them. This is of course provided that there is no inheritance tax.
I think that most kids would love to inherit I-bonds. Just remember that, unlike most investments, the basis is not reset at the time of death so the beneficiary will be paying taxes on everything since the purchase. Still, it'd be a welcome gift.
This really depends on if the interest was paid each year or deferred by the person who passed away. If interest was paid annually, then the beneficiary only pays for interest going forward.

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Gill » Sat Sep 01, 2018 7:53 am

donall wrote:
Sat Sep 01, 2018 7:45 am
Artsdoctor wrote:
Fri Aug 31, 2018 2:29 pm
UncleBogle wrote:
Fri Aug 31, 2018 11:51 am
AlphaLess wrote:
Fri Aug 31, 2018 9:07 am
- iBonds are tax free while you hold them,
- at redemption time, you pay federal taxes on the growth, but not state taxes.
This makes me wonder if it would be a good idea to pass I Bonds on as an inheritance(as mentioned above) particularly to a youth, since they will have no taxes, or a low tax bracket if they redeem them. This is of course provided that there is no inheritance tax.
I think that most kids would love to inherit I-bonds. Just remember that, unlike most investments, the basis is not reset at the time of death so the beneficiary will be paying taxes on everything since the purchase. Still, it'd be a welcome gift.
This really depends on if the interest was paid each year or deferred by the person who passed away. If interest was paid annually, then the beneficiary only pays for interest going forward.
Don’t you mean if accrued interest was reported as income? Very few taxpayers do that.
Gill

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Broken Man 1999 » Sat Sep 01, 2018 9:56 am

smectym wrote:
Sat Sep 01, 2018 2:32 am
Seems like quite a few were instigated under the influence of this forum to load up on I bonds way back when...I plead guilty. Don’t have 7 figures in I bonds as one poster above claims, but high 6 yes. Viewed from today, after one of the greatest stock market rallies in world history (and not over yet)—no, I bonds haven’t outperformed equities. Still, the Risk-Adjusted Return is acceptable.

I note that the monthly interest these instruments earn for us by now, after a couple decades of compounding, is competitive with a robust social security check. Just one piece of the puzzle, but glad we bought when we did, and thanks to those who pointed out the opportunity 20 or so years ago

Smectym
I bought a bunch of I Bonds paying 3.0%-3.6% as well. In fact I received a letter from the feds chastising me for buying over the limit one year. I didn't mind, as there was no punishment, I even kept the bonds that were in excess of my limit.

For a while, the savings bonds could be bought with a credit card. So with a rebate card you could get cash back. Unfortunately that option was removed.

I have a few years to figure out a strategy to cash in the bonds as painlessly as is possible. It is a nice problem to have.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by ThriftyPhD » Sat Sep 01, 2018 10:21 am

knpstr wrote:
Fri Aug 31, 2018 9:29 pm
I-bonds may be the preferrable type of bonds -- I'm not arguing against that point. However, with money you have no intention of ever needing, or plan to pass to heirs -- I would not hold bonds, I would reduce my bonds amount and buy more VTSAX.
You're still not quite understanding. Let's put numbers on it.

Dave is 65 and retires. He wants a 60:40 portfolio through retirement. He has $1 million in his accounts, plans to spend $40k in the first year increasing each year with inflation (standard 4% withdraw).

$600k in Total Stock Index (VTSAX)
$200k in Total Bond (VBTLX)
$200k in I-bonds that have 3% real rate

Given the 4% withdraw, Dave will most likely pass leaving money to heirs. That's the point of 4% of course, you're likely to survive poor sequence of returns, but in a good scenario you end up with a lot of money after your death.

So, if Dave wants a 60:40 portfolio, why would you suggest he sell his $200k I-bonds to buy VTSAX? That would move the portfolio to 80:20. IN ADDITION, why would Dave sell the I-bonds before the VBTLX? The I-bonds with 3% real have a much higher yield than VBTLX and will never go down in value. There is little reason why Dave would sell his I-bonds before maturity instead of selling VBTLX. Therefore, long before the I-bonds are sold, the VBTLX should be sold.

So if you're not suggesting that Dave goes to 100% equities, why would you suggest he sell the 3% real I-bonds?

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

Post by Mel Lindauer » Sat Sep 01, 2018 10:54 am

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Re: Will I ever sell Ibonds from 2001 - 3% fixed

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