I bonds - Are they worth it to you?

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Willmunny
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I bonds - Are they worth it to you?

Post by Willmunny »

I currently own no U.S. savings bonds. Given the relatively small annual purchase limit, I would, in an ideal world, like to begin the process of gradually moving most of my emergency fund into I bonds. The purchase limit is a hassle, but the inflation protection and lack of negative real yield in the current environment are attractive (not to mention income tax deferral). I have been reading forums here about them and about the process, and I am having second thoughts about whether I should even do it. The concerns include:

- I have seen posts from Mel and others in which, it appears to me, they have analyzed the Treasury Direct's online policy and do not feel comfortable that they will be necessarily made whole if the site gets hacked or there is some other cyber theft. I could be reading it wrong, but these concerns appeared to be specific to the Treasury Direct's website and they didn't appear to have similar concerns with online brokerages such as Vanguard. I am not sure if these prior concerns have been addressed adequately by the Treasury.

- Aside from the above, many say they find the Treasury Direct's website to be a pain/hassle. I can deal with hassles, but if you couple it with the above, I am not sure.

- If one is not comfortable with Treasury Direct, then there is the paper/tax refund option for up to 5k per year. But that involves some hassle and a several year process with overpayment, tax forms, etc. Then you would need several years just starting out to build up a meaningful emergency fund at 5k per year. Then you would either have to find a bank to cash them in when the time comes (which I feel less and less are doing as paper savings bonds are maturing and new ones are not issued outside this tax return structure. So, realistically, with a long holding period, you are probably going to be dealing with Treasury Direct on the back end.

It's frustrating because, mathematically, the I bonds seem to be such a better deal than TIPS now. I can deal with the small purchase limits as they have always been sort of an average Joe savings tool and not something for institutional investors, but I wonder if the juice is worth the squeeze here or if I just sit tight in online savings until (hopefully) one day real yields are not materially negative and at that time buys TIPS or a short term TIPS fund like Vanguard's or STIP. I know the TIPS wouldn't give me the tax deferral feature of I bonds, but at a positive real yield I like them better due to the ability to just buy them through an online broker. What are your thoughts?

Thanks.
Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
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Re: I bonds - Are they worth it to you?

Post by Prokofiev »

Kookaburra wrote: Sun Oct 18, 2020 7:40 pm I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
And what is your alternative?
Everything should be made as simple as possible, but not simpler - Einstein
Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

Prokofiev wrote: Sun Oct 18, 2020 7:44 pm
Kookaburra wrote: Sun Oct 18, 2020 7:40 pm I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
And what is your alternative?
At this point in my life... equities.
Topic Author
Willmunny
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Re: I bonds - Are they worth it to you?

Post by Willmunny »

Kookaburra wrote: Sun Oct 18, 2020 7:40 pm I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
Yeah, you and I definitely have different reservations. This is for funds that I want to be fixed income (even at current horrible interest rates) and I want them to have little or no downward nominal price fluctuations.
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whodidntante
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Re: I bonds - Are they worth it to you?

Post by whodidntante »

Kookaburra wrote: Sun Oct 18, 2020 7:40 pm I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
Even if you conclude that the inflation rate on the I bond matches your personal inflation, you'll still lose by the amount of tax you have to pay when you redeem the bonds.
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Re: I bonds - Are they worth it to you?

Post by 000 »

I thought about I bonds a year or so ago, but thought "I might need the money within a year". Of course I didn't. :oops:

And now I'm looking at I bonds, thinking "I might need the money within a year". :oops: :oops:

Irrelevance of CPI and illiquidity (e.g. what if a deal in stocks comes up?) are still holding me back....

Let's see where I am next year.
Wilderness Librarian
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Re: I bonds - Are they worth it to you?

Post by Wilderness Librarian »

I reluctantly stopped buying I-bonds when they stopped issuing them in paper through local banks. My reasoning somewhat like OP's but more so about my eyesight/computer skills/website changes over time including possible password lockout if I haven't used the site in a decade etc. when I (or heirs) try to cash them 30 yrs later at maturity.
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Re: I bonds - Are they worth it to you?

Post by z3r0c00l »

Been buying for 8 years now, coming up on $100,000 soon. (I know this isn't a big number to the typical boglehead since most here seem to be mulit-millionaires...) Plenty to cover the emergency fund and most of my bond needs for now. It promises to match inflation, no more, no less. That may not be exciting, but almost nothing else will get you the same promise with zero volatility. Plus living in NYC the tax break is a real bonus. I don't get the webpage fear at all since Vanguard and every other company works through webpages too. Keep paper records of everything, set a beneficiary, include accounts and login info with your will.
Last edited by z3r0c00l on Sun Oct 18, 2020 8:02 pm, edited 2 times in total.
Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

whodidntante wrote: Sun Oct 18, 2020 7:55 pm
Kookaburra wrote: Sun Oct 18, 2020 7:40 pm I’m also on the fence, albeit for possibly different reasons. I just have a hard time getting excited for something that has a real yield of 0%. Also, I don’t feel that the inflation index that it uses tracks my personal inflation, meaning it has a negative real yield to me.

I’ll be interested to hear what others say.
Even if you conclude that the inflation rate on the I bond matches your personal inflation, you'll still lose by the amount of tax you have to pay when you redeem the bonds.
Yup. Definitely a negative real after-tax yield.

I can see the value of these for those nearing or in retirement. Too bad there is an annual limit and that it’s so small, as it effectively forces one to start buying them at a young age and continue for decades to have any meaningful balance at retirement. But when one is young or mid stage, they just seem relatively unattractive (at current rates).
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JoMoney
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Re: I bonds - Are they worth it to you?

Post by JoMoney »

I like series I savings bonds, I don't consider the risk of the Treasury Direct account getting "hacked" as being a big issue.
Treasury Direct funds can only be transferred to a linked bank account, and that account would have to be registered in the same name (my name), and I would be notified if another account was linked.
The simple $10,000 limit is sufficient for me, it would be nice if the limit was larger, but $10,000 per person is, I think, reasonable.
If wanted to jump through hoops to over pay taxes and get an extra $5,000 in, it really isn't that complicated, and is not a "several year process". You simply over-pay your tax withholding and request savings bonds at the the time you file. You could do the withholding or send in a tax payment in December get your additional I Bonds when you do your tax return in January.
Last edited by JoMoney on Sun Oct 18, 2020 8:26 pm, edited 1 time in total.
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ivgrivchuck
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

Kookaburra wrote: Sun Oct 18, 2020 8:00 pm
I can see the value of these for those nearing or in retirement. Too bad there is an annual limit and that it’s so small, as it effectively forces one to start buying them at a young age and continue for decades to have any meaningful balance at retirement. But when one is young or mid stage, they just seem relatively unattractive (at current rates).
But again, what's the alternative? Most people are not comfortable going 100% stocks. Bond funds have similar or lower yields and carry duration and credit risk. CDs, HYSAs rates are lower.

I'm at mid-stage and trying to buy them as fast as I can...
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crystalbank
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Re: I bonds - Are they worth it to you?

Post by crystalbank »

I'm in my early 30s and I started purchasing I-Bonds this year. I was very hesitant to deal with TreasuryDirect but after using it for a while, I can say that it's not at all a pain. The customer support is very responsive (phone and email) and seem very knowledgeable. I've also come to appreciate the time tested design of the site and the fact that it won't change for a long time.

In hindsight, it was a mistake not to buy I-bonds last year and even though the fixed rate is zero now, better late than never. Going forward, I intend to maximize the annual limit and all my emergency fund will be in I-bonds.
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Re: I bonds - Are they worth it to you?

Post by RJC »

Is Total Bond (VBTLX) worse than I Bonds?
WolfgangPauli
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Re: I bonds - Are they worth it to you?

Post by WolfgangPauli »

Wilderness Librarian wrote: Sun Oct 18, 2020 7:59 pm I reluctantly stopped buying I-bonds when they stopped issuing them in paper through local banks. My reasoning somewhat like OP's but more so about my eyesight/computer skills/website changes over time including possible password lockout if I haven't used the site in a decade etc. when I (or heirs) try to cash them 30 yrs later at maturity.
We actually had this happen once where on my wife's site we were "locked out". However, surprising, the customer service phone number was as good or better than anytime I called Vanguard. We were back in business in an hour (With all the appropriate phone security stuff). The website is a bit "clunky" but it is really secure. I do print the screen every month and store it as a "statement".

Finally, if you have records, I cannot imagine if the TD site was "hacked" they would deny you redemption. That would make for a hell of a news story.
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WolfgangPauli
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Re: I bonds - Are they worth it to you?

Post by WolfgangPauli »

crystalbank wrote: Sun Oct 18, 2020 8:42 pm I'm in my early 30s and I started purchasing I-Bonds this year. I was very hesitant to deal with TreasuryDirect but after using it for a while, I can say that it's not at all a pain. The customer support is very responsive (phone and email) and seem very knowledgeable. I've also come to appreciate the time tested design of the site and the fact that it won't change for a long time.

In hindsight, it was a mistake not to buy I-bonds last year and even though the fixed rate is zero now, better late than never. Going forward, I intend to maximize the annual limit and all my emergency fund will be in I-bonds.
+1
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ivgrivchuck
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

RJC wrote: Sun Oct 18, 2020 8:45 pm Is Total Bond (VBTLX) worse than I Bonds?
In my opinion it's a lot worse, but of course opinions differ.

VBTLX:
Yield to maturity: 1.2%
Average duration: 6.6 years
Carries credit risk

I-bonds:
I-bond yield: 1.06% (predicted to increase next month)
No duration risk
No credit risk
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DJZ
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Re: I bonds - Are they worth it to you?

Post by DJZ »

If you want to learn about them, www.tipswatch.com

He’s very knowledgeable. My opinion, buy the max of both I and EE every year. Very safe, plus other interesting characteristic that others described here. You will need less of your bond mutual fund if you do.
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Re: I bonds - Are they worth it to you?

Post by JBTX »

We have been doing these for quite a few years. It starts to add up. I wish we had done more.

There are pros and cons to every investment. Perhaps there is a greater theoretical risk to online theft. They appear to be a bit more difficult to transfer during estate settlement. But the higher yield and inflation protection are worth it, at least IMO.

I may be also buy EE bonds this year for the first time.
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Re: I bonds - Are they worth it to you?

Post by z3r0c00l »

ivgrivchuck wrote: Sun Oct 18, 2020 9:08 pm
RJC wrote: Sun Oct 18, 2020 8:45 pm Is Total Bond (VBTLX) worse than I Bonds?
In my opinion it's a lot worse, but of course opinions differ.

VBTLX:
Yield to maturity: 1.2%
Average duration: 6.6 years
Carries credit risk

I-bonds:
I-bond yield: 1.06% (predicted to increase next month)
No duration risk
No credit risk
Don't forget state and local tax exempt for iBonds.
runner3081
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Re: I bonds - Are they worth it to you?

Post by runner3081 »

Just bought 7K last month. I am not worried.

They make up tier II of the emergency fund.
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Re: I bonds - Are they worth it to you?

Post by CardinalRule »

WolfgangPauli wrote: Sun Oct 18, 2020 8:52 pm
Finally, if you have records, I cannot imagine if the TD site was "hacked" they would deny you redemption. That would make for a hell of a news story.
Yep, denying this would be a political non-starter.
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Re: I bonds - Are they worth it to you?

Post by Iorek »

I love i bonds for an e fund and like them a lot for non-retirement and non-equity savings. Over the years we’ve managed to accumulate a nice amount.

Personally I think the risk of losing money in a hack is so small as to carry no weight and I have no real problems with the website (they made the password security less clunky and I learned some of the site’s quirks, like no navigating using the “back” button on your browser).
SnowBog
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Re: I bonds - Are they worth it to you?

Post by SnowBog »

Willmunny wrote: Sun Oct 18, 2020 7:34 pm - I have seen posts from Mel and others in which, it appears to me, they have analyzed the Treasury Direct's online policy and do not feel comfortable that they will be necessarily made whole if the site gets hacked or there is some other cyber theft. I could be reading it wrong, but these concerns appeared to be specific to the Treasury Direct's website and they didn't appear to have similar concerns with online brokerages such as Vanguard. I am not sure if these prior concerns have been addressed adequately by the Treasury.
For my two cents, I think as least some of that concern is a reflection of "paper bonds were better". If I understand, with a paper bond, someone could cash it, and if it wasn't you, the government would make you whole. And the "hassle" of the TD website, is to attempt to protect your account from misuse.

Since paper bonds aren't a meaningful option (outside of $5k tax refund), I don't let it phase me...
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Re: I bonds - Are they worth it to you?

Post by 7eight9 »

My wife and I bought some I bonds in the early 2010s. The last four years we have each bought $10K plus $5K tax refund. In hindsight we probably should have been buying all along as they seem to be one of the better risk-free investments available. With respect to the ease of Treasury Direct - as long as you remember not to hit the backspace on your browser it is a very simple and easy website to use.
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Re: I bonds - Are they worth it to you?

Post by evestor »

Willmunny wrote: Sun Oct 18, 2020 7:34 pm - I have seen posts from Mel and others in which, it appears to me, they have analyzed the Treasury Direct's online policy and do not feel comfortable that they will be necessarily made whole if the site gets hacked or there is some other cyber theft. I could be reading it wrong, but these concerns appeared to be specific to the Treasury Direct's website and they didn't appear to have similar concerns with online brokerages such as Vanguard. I am not sure if these prior concerns have been addressed adequately by the Treasury.
From a pure cyber security perspective, I'm not aware of anything that would lead us to conclude Vanguard is materially more secure than Treasury Direct.
Beyond core security, it is unclear that Vanguard will stand behind clients in a way that Treasury Direct will not. Maybe this is out there. But I'm not aware of it.

If there is actual data here that would be super valuable. But this should be assumed untrue until proven otherwise. Without specific claims to the contrary, this is FUD.

(To be clear, I'm not defending the security of Treasury Direct...which is IMO pretty bad...but Vanguard is not IMO a whole lot better :D)
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Re: I bonds - Are they worth it to you?

Post by Jack FFR1846 »

I'm quite happy with my $387k worth of paper iBonds. I have been buying for many decades and took advantage of a time when each family member could buy $30k per year online with a credit card and no fee and then cash with interest penalty in 6 months. The family upgraded to first class on Aruba trips for quite a few years doing this with a miles card. Cashing them is wicked easy at DCU and I've done everything from single bond cashing to a stack of $50k and its never been a problem.

Back in the day, I kept no efund and even invested in iBonds with money that would have to pay for credit card bills next month. I used the bonds as a rotating savings account. I do still get the $5k per year from my federal refund but only deal with paper bonds, having spent 8 hours with TD trying to cash bonds in my dad's name and my kids when he passed. Paper takes seconds to cash and the funds are immediately available.
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SmileyFace
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Re: I bonds - Are they worth it to you?

Post by SmileyFace »

Willmunny wrote: Sun Oct 18, 2020 7:34 pm
- Aside from the above, many say they find the Treasury Direct's website to be a pain/hassle. I can deal with hassles, but if you couple it with the above, I am not sure.
The majority find the website to be "Excellent" (something like 73%) and most beyond that find it to be great or good (with great being a much larger percentage than good). Last I looked, only 3% found it poor. This is according to the survey you are presented with when you logoff.
It's presentation isn't as polished as a brokerage site - but it works.
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Re: I bonds - Are they worth it to you?

Post by RJC »

ivgrivchuck wrote: Sun Oct 18, 2020 9:08 pm
RJC wrote: Sun Oct 18, 2020 8:45 pm Is Total Bond (VBTLX) worse than I Bonds?
In my opinion it's a lot worse, but of course opinions differ.

VBTLX:
Yield to maturity: 1.2%
Average duration: 6.6 years
Carries credit risk

I-bonds:
I-bond yield: 1.06% (predicted to increase next month)
No duration risk
No credit risk
But isn't it up 7% YTD and 8% in 2019? I'm fairly new to the bond space so pardon me if I am not seeing something.
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

RJC wrote: Mon Oct 19, 2020 2:33 pm
But isn't it up 7% YTD and 8% in 2019? I'm fairly new to the bond space so pardon me if I am not seeing something.
What you are missing is that past yield is a very poor predictor of future yield.
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Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

ivgrivchuck wrote: Mon Oct 19, 2020 3:15 pm
RJC wrote: Mon Oct 19, 2020 2:33 pm
But isn't it up 7% YTD and 8% in 2019? I'm fairly new to the bond space so pardon me if I am not seeing something.
What you are missing is that past yield is a very poor predictor of future yield.
I don’t disagree, but is there a compelling reason to believe/predict that Ibonds will be more attractive from a total return standpoint than VBTLX over the next 10, 20, or 30 years?
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Re: I bonds - Are they worth it to you?

Post by dcabler »

Been buying them for a few years now. We max out $10K for each of us and I try to jigger my withholdings to get the $5K additional from my tax refund. I think next year's purchases are likely to be our last ones as we'll have "enough".

I mainly do it for piece of mind. Based on our SS projections at age 70, our Ibonds + TIPs ladder (created with TIPs mutual funds ala Bobcat2) will provide 15 years of COLA'd income on top of SS - the total amount will just about cover what I think our minimum expenses will be. We'll consider a SPIA after that, if we're still kicking. The rest of our portfolio will provide the bridge between retirement (whenever that happens) and age 70 plus life's extras for 70 and beyond. Absolutely necessary? Probably not, but like I said, gives us piece of mind.

Cheers.
Last edited by dcabler on Mon Oct 19, 2020 3:58 pm, edited 1 time in total.
UpperNwGuy
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Re: I bonds - Are they worth it to you?

Post by UpperNwGuy »

I don't buy iBonds because I don't consider them to be worth the trouble. I stick to bond mutual funds.
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Re: I bonds - Are they worth it to you?

Post by beyou »

Moving a bit each year to gradually shift your E-Fund makes some sense, and since they don't let you buy too much per year, they prevent you from making the mistake of moving your entire E-fund at once (locking it up for a year which should not be done with an E-fund). A small portion, latest year, will be illiquid but that's it. Rates competitive with short term bonds/money market funds that usually would be E-funds.

I have no issues with the website in the last 20 years of usage.
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Re: I bonds - Are they worth it to you?

Post by djheini »

Kookaburra wrote: Mon Oct 19, 2020 3:32 pm
ivgrivchuck wrote: Mon Oct 19, 2020 3:15 pm
RJC wrote: Mon Oct 19, 2020 2:33 pm
But isn't it up 7% YTD and 8% in 2019? I'm fairly new to the bond space so pardon me if I am not seeing something.
What you are missing is that past yield is a very poor predictor of future yield.
I don’t disagree, but is there a compelling reason to believe/predict that Ibonds will be more attractive from a total return standpoint than VBTLX over the next 10, 20, or 30 years?
The bonds went up in value because prevailing interest rates went down. (If I have a bond that pays 5% interest, I'll be able to sell it for a higher price if prevailing interest rates for similar new issue bonds go down to 2%)

Once the bonds in VBTLX mature they will be replaced with bonds paying whatever the current interest rates are. So going forward you will either get paid low interest rates (if rates stay low) on new bonds, or the value of the bonds that VBTLX holds will decrease (if interest rates rise).

Savings Bonds do not have this price volatility - you just redeem them from the treasury for their initial purchase price + accrued interest - no need to find someone willing to buy the bond at a particular price like most bonds in VBTLX.
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Willmunny
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Re: I bonds - Are they worth it to you?

Post by Willmunny »

Jack FFR1846 wrote: Mon Oct 19, 2020 7:03 am I'm quite happy with my $387k worth of paper iBonds. I have been buying for many decades and took advantage of a time when each family member could buy $30k per year online with a credit card and no fee and then cash with interest penalty in 6 months. The family upgraded to first class on Aruba trips for quite a few years doing this with a miles card. Cashing them is wicked easy at DCU and I've done everything from single bond cashing to a stack of $50k and its never been a problem.

Back in the day, I kept no efund and even invested in iBonds with money that would have to pay for credit card bills next month. I used the bonds as a rotating savings account. I do still get the $5k per year from my federal refund but only deal with paper bonds, having spent 8 hours with TD trying to cash bonds in my dad's name and my kids when he passed. Paper takes seconds to cash and the funds are immediately available.
Wow. I think you have the highest I bond amount I have ever heard on this site. In the interest rate environment now, having such a significant holding in I bonds has to feel great.

Thanks for everyone's input. It was very helpful.
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

djheini wrote: Mon Oct 19, 2020 4:45 pm
The bonds went up in value because prevailing interest rates went down. (If I have a bond that pays 5% interest, I'll be able to sell it for a higher price if prevailing interest rates for similar new issue bonds go down to 2%)

Once the bonds in VBTLX mature they will be replaced with bonds paying whatever the current interest rates are. So going forward you will either get paid low interest rates (if rates stay low) on new bonds, or the value of the bonds that VBTLX holds will decrease (if interest rates rise).
Exactly. So it's very likely that for the next 10 years I-bonds will pay more or the same as bond funds.

After that, if the rates have gone up significantly, you can re-evaluate.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
Angst
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Re: I bonds - Are they worth it to you?

Post by Angst »

whodidntante wrote: Sun Oct 18, 2020 7:55 pm Even if you conclude that the inflation rate on the I bond matches your personal inflation, you'll still lose by the amount of tax you have to pay when you redeem the bonds.
I'm confused! Nothing new about that, but really, is there something obvious here that I'm missing?
Is there a govt guaranteed fixed income alternative for which you don't have to pay tax?
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Re: I bonds - Are they worth it to you?

Post by epictetus »

a con:
if you die with more than $100,000 in savings bonds your will has to go through probate.

or at least that is my understanding
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Re: I bonds - Are they worth it to you?

Post by 000 »

Angst wrote: Mon Oct 19, 2020 5:25 pm
whodidntante wrote: Sun Oct 18, 2020 7:55 pm Even if you conclude that the inflation rate on the I bond matches your personal inflation, you'll still lose by the amount of tax you have to pay when you redeem the bonds.
I'm confused! Nothing new about that, but really, is there something obvious here that I'm missing?
Is there a govt guaranteed fixed income alternative for which you don't have to pay tax?
FOMC-insured stocks?
FactualFran
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Re: I bonds - Are they worth it to you?

Post by FactualFran »

It is not worth it to me to buy U.S. Savings Bonds. I plan to hold until maturity paper I-Bonds that I have. I plan to sell during the next few years book-entry (at Treasury Direct) I-Bonds. I will sell book-entry EE-Bonds when they reach their original maturity (when they have a redemption value of twice the purchase price).
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anon_investor
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Re: I bonds - Are they worth it to you?

Post by anon_investor »

I have been moving my emergency fund into I Bonds from no penalty CDs. At least for me I Bonds are a no brainer for my emergency fund (once the 1 year holding period is satisfied). 0 risk to principal, state tax exempt, tax deferred for up to 30 years (I am less than 30 years from retirement), some inflation protection, and currently better interest than any other risk free investment.
david9117
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Re: I bonds - Are they worth it to you?

Post by david9117 »

epictetus wrote: Mon Oct 19, 2020 5:38 pm a con:
if you die with more than $100,000 in savings bonds your will has to go through probate.

or at least that is my understanding
I thought that if you have POD (payment on death) setup for Ibonds probate is moot. I have setup POD with kids are recipients. Do we need a will in addition ?
Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

djheini wrote: Mon Oct 19, 2020 4:45 pm
Kookaburra wrote: Mon Oct 19, 2020 3:32 pm
ivgrivchuck wrote: Mon Oct 19, 2020 3:15 pm
RJC wrote: Mon Oct 19, 2020 2:33 pm
But isn't it up 7% YTD and 8% in 2019? I'm fairly new to the bond space so pardon me if I am not seeing something.
What you are missing is that past yield is a very poor predictor of future yield.
I don’t disagree, but is there a compelling reason to believe/predict that Ibonds will be more attractive from a total return standpoint than VBTLX over the next 10, 20, or 30 years?
The bonds went up in value because prevailing interest rates went down. (If I have a bond that pays 5% interest, I'll be able to sell it for a higher price if prevailing interest rates for similar new issue bonds go down to 2%)

Once the bonds in VBTLX mature they will be replaced with bonds paying whatever the current interest rates are. So going forward you will either get paid low interest rates (if rates stay low) on new bonds, or the value of the bonds that VBTLX holds will decrease (if interest rates rise).

Savings Bonds do not have this price volatility - you just redeem them from the treasury for their initial purchase price + accrued interest - no need to find someone willing to buy the bond at a particular price like most bonds in VBTLX.
And what if interest rates fall further / go negative? What wins in that situation - VBTLX or I-bonds? Predicting that interest rates must go up is as foolish as trying to predict the stock market.
ivgrivchuck
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

Kookaburra wrote: Mon Oct 19, 2020 8:24 pm
And what if interest rates fall further / go negative? What wins in that situation - VBTLX or I-bonds? Predicting that interest rates must go up is as foolish as trying to predict the stock market.
I think there is a misunderstanding here. Nobody is trying to predict whether rates go up or down. What we are talking about are probability distributions.

While it's true that FED rate can go somewhat negative, it can't go more than around -0.75% without breaking the economy and banking system. So there is very little room to go downwards.

At the same time there is a lot of room for the rates to increase, somewhere up to 8% (and in theory infinity, but in practice no).

So the future interest rates lie somewhere between [-0.75%, 8%].

This is called one-sided duration risk, and it's very unfavorable for bond holdings, especially for bonds with long durations.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
000
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Re: I bonds - Are they worth it to you?

Post by 000 »

ivgrivchuck wrote: Mon Oct 19, 2020 9:19 pm While it's true that FED rate can go somewhat negative, it can't go more than around -0.75% without breaking the economy and banking system. So there is very little room to go downwards.
Why? Isn't Switzerland at -2%?
Kookaburra
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Re: I bonds - Are they worth it to you?

Post by Kookaburra »

ivgrivchuck wrote: Mon Oct 19, 2020 9:19 pm
Kookaburra wrote: Mon Oct 19, 2020 8:24 pm
And what if interest rates fall further / go negative? What wins in that situation - VBTLX or I-bonds? Predicting that interest rates must go up is as foolish as trying to predict the stock market.
I think there is a misunderstanding here. Nobody is trying to predict whether rates go up or down. What we are talking about are probability distributions.

While it's true that FED rate can go somewhat negative, it can't go more than around -0.75% without breaking the economy and banking system. So there is very little room to go downwards.

At the same time there is a lot of room for the rates to increase, somewhere up to 8% (and in theory infinity, but in practice no).

So the future interest rates lie somewhere between [-0.75%, 8%].

This is called one-sided duration risk, and it's very unfavorable for bond holdings, especially for bonds with long durations.
8%, Lol. A reasonable person could disagree with both your range and the probability claim that it is more likely to go up than down.
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

000 wrote: Mon Oct 19, 2020 9:25 pm
ivgrivchuck wrote: Mon Oct 19, 2020 9:19 pm While it's true that FED rate can go somewhat negative, it can't go more than around -0.75% without breaking the economy and banking system. So there is very little room to go downwards.
Why? Isn't Switzerland at -2%?
Not that I know of. Seems to be -0.75 based on https://tradingeconomics.com/switzerlan ... 0of%202015.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
ivgrivchuck
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Re: I bonds - Are they worth it to you?

Post by ivgrivchuck »

Kookaburra wrote: Mon Oct 19, 2020 9:42 pm
8%, Lol. A reasonable person could disagree with both your range and the probability claim that it is more likely to go up than down.
1) And why exactly the rate in 20 years couldn't be 8%? It has happened in the past. I'm not saying that it has to be likely... So much money has been printed recently that there are certain low probability scenarios of runaway inflation which needs to be countered by raising interest rates pretty fast.

2) I'm not claiming that rates are more likely to go up or down. All I'm saying that the probability distribution is unfavorable.

3) Even if you assume fully symmetric interest rate probability distribution, VBTLX carries duration risk and credit risk while I-bonds carries neither. Yields being identical rational investor will choose the asset with the least risk.
44% VTI | 36% VXUS | 10% I-bonds | 10% EE-bonds
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2pedals
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Re: I bonds - Are they worth it to you?

Post by 2pedals »

I plan on unloading my I bonds and EE bonds. Inherited savings bonds tend to be complicated when working through treasury direct. After death, I don't want to leave an account in the form of an "unfriendly" treasury direct account to DW or DD.

The timing of selling and maturing bonds (interest was accumulated for years) have increased my income in early retirement, which I could have done without since I have been doing annual partial Roth conversions. In retrospect it probably would have been better to avoid deferred taxable interest in my taxable accounts and invest the money in a tax efficient total market index fund.
Last edited by 2pedals on Mon Oct 19, 2020 11:12 pm, edited 1 time in total.
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