iBonds [How are they viewed as part of your portfolio strategy?]

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willyd123
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iBonds [How are they viewed as part of your portfolio strategy?]

Post by willyd123 »

I bought iBonds in late 2021 and again in early 2022 and now I am trying to determine if I buy more in 2023.

I know that the current iBond interest rate is historically pretty high which is great but of course that's due to high inflation and so my real return will be zero. With equities and other bonds, you at least have the potential of earning a real return (of course you can also have a real loss). So I was wondering how people view iBonds in terms of their portfolio strategy? Is this a place where you stash idle cash that you otherwise would be earning a lower rate of interest in your checking account? Or are iBonds an integral part of your bond allocation? If so, do you target a certain allocation to iBonds?

Thanks.
secondopinion
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by secondopinion »

It is hard to have a target allocation when I-bonds have a purchase limit. When the I-bonds can beat long-term TIPS, then certainly I will buy I-bonds. But when I-bonds are fairly inferior to TIPS (even after factoring in taxes), it is hard to justify their use.

It really is a value judgment.
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lakpr
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by lakpr »

secondopinion wrote: Mon Nov 21, 2022 12:04 pm It is hard to have a target allocation when I-bonds have a purchase limit. When the I-bonds can beat long-term TIPS, then certainly I will buy I-bonds. But when I-bonds are fairly inferior to TIPS (even after factoring in taxes), it is hard to justify their use.

It really is a value judgment.
Hmm ... regarding the bolded text, don't the IRA contributions (whether Roth or Traditional, whether deductible or after-tax) also have limits, even lower than the I-bond purchase limits?

View the I-bonds as an extension of your tax-deferred space, and view it as a non-deductible IRA. Once the 1-year block-out period passes, you can withdraw from the I-bonds a minimum of $25 per withdrawal and 0.01 increments thereafter. Every withdrawal is then treated as a proportional withdrawal of principal contributed and interest earned, and taxes will be due only on interest portion. Just like a non-deductible IRA.

Tax Efficient Asset Allocation teaches us that we should hold bonds in tax-deferred space, so the asset class (bonds) also fits neatly with the type of account (non-deductible IRA).

If you are considering TIPS or TIPS funds in your 401(k), you should also be enthusiastic about buying the I-bonds in taxable space. If you are maxing out your Roth IRA annually and filling it with stocks, you should also be enthusiastic about maxing out the I-bonds and view it as part of your bond allocation.

The only difference is that I-bonds compulsorily mature at 30-years past the purchase date, whereas a non-deductible IRA will be indefinite and continue to grow. But 30 years is a long enough time that MOST people would be either retired by then, or pretty close to it ..
Last edited by lakpr on Mon Nov 21, 2022 12:30 pm, edited 1 time in total.
Kookaburra
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Kookaburra »

I plan to build up a position in Series I bonds over time to serve as part of my inflation hedge in retirement. It will complement an eventual TIPS fund. I like how it extends my tax-deferred space and is free of state income tax.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Jack FFR1846 »

I view my iBonds as the most versatile part of my portfolio. I consider them to be part of my emergency fund, categorize them in my bonds/fixed income category and like the fact that I won't have to pay my state's income tax on the interest when I cash them out. I guess I could also consider them as "out of probate" for the ones that list me or DW and one of our kids as co-owners. I'm past the college days, but if you're not, you might be able to cash them and pay no income tax on the interest if used for college expenses.

I don't buy/sell them in my rebalancing. But I don't need to as I have enough traditional bond funds to buy/sell those when my 5% window gets hit.

In the olden days, I used iBonds as my savings account. Back then, one could buy $30k worth a year and sell them in 6 months. I do remember selling some of them to buy an SUV back in the 90's.

I'll finally also mention that I ONLY hold paper bonds, having had a horrible experience with TD some time ago. I've got a bit over $400k in paper bonds. My credit union (DCU) cashes any amount of bonds quickly and the money's available to spend before I get out the door.
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JayDee37
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by JayDee37 »

When I became aware of I bonds a couple of years ago, I bought some to serve as a part of my emergency fund. Right now about half my emergency fund is in an HYSA, and half is in I bonds. So I have not yet had to wrestle with the question of incorporating them into my overall bond allocation (I am one of those folks who does not include their EF in their long-term thinking about AA).

Since I like having half my EF in cash and half in I bonds, if I decide to buy more I bonds in 2023 I will likely consider them as a part of my overall bond allocation (almost all of which is otherwise in my 457(b), which does not offer a TIPS fund or any TIPS options). I bonds do behave quite a bit differently from other types of bonds (I do not understand bonds at all so I can't explain how they differ, but I have read enough threads to know that they do), so you should be aware of those differences.

And count me with those who don't really care about the purchase limits. IRAs have lower limits. Most people are not able to max their 401(k) contributions. For those who can save more than these limits, I bonds are a nice way to extend tax deferred space and hedge against inflation.
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GreendaleCC
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by GreendaleCC »

I’m wrestling with the purchase decision for 2023. For me, I bonds are fixed income, not a savings account.

Most of the discussions here center on I bonds vs TIPS, and the competitiveness of rates. More and more, I’m leaning toward more I bond purchases as a way to expand my tax-deferred space. I would prefer $10k of I bonds to a state muni fund.

I want to keep fixed income out of my Roth IRA (backdoor) and 401k (fund selections co-mingled across pre-tax and after-tax Roth in-service rollovers).
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Kitty Telltales
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Kitty Telltales »

Instead of the I Bond vs TIPS route, I am combining both and building a bonds ladder. There are years where TIPS maturities aren’t available, so I am plugging my I Bonds into that gap in my withdraw schedule. I am able to pick up the TIPS in my tax-deferred space as suggested.

I am working on building a 20 year ladder for now.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by secondopinion »

lakpr wrote: Mon Nov 21, 2022 12:26 pm
secondopinion wrote: Mon Nov 21, 2022 12:04 pm It is hard to have a target allocation when I-bonds have a purchase limit. When the I-bonds can beat long-term TIPS, then certainly I will buy I-bonds. But when I-bonds are fairly inferior to TIPS (even after factoring in taxes), it is hard to justify their use.

It really is a value judgment.
Hmm ... regarding the bolded text, don't the IRA contributions (whether Roth or Traditional, whether deductible or after-tax) also have limits, even lower than the I-bond purchase limits?

View the I-bonds as an extension of your tax-deferred space, and view it as a non-deductible IRA. Once the 1-year block-out period passes, you can withdraw from the I-bonds a minimum of $25 per withdrawal and 0.01 increments thereafter. Every withdrawal is then treated as a proportional withdrawal of principal contributed and interest earned, and taxes will be due only on interest portion. Just like a non-deductible IRA.

Tax Efficient Asset Allocation teaches us that we should hold bonds in tax-deferred space, so the asset class (bonds) also fits neatly with the type of account (non-deductible IRA).

If you are considering TIPS or TIPS funds in your 401(k), you should also be enthusiastic about buying the I-bonds in taxable space. If you are maxing out your Roth IRA annually and filling it with stocks, you should also be enthusiastic about maxing out the I-bonds and view it as part of your bond allocation.

The only difference is that I-bonds compulsorily mature at 30-years past the purchase date, whereas a non-deductible IRA will be indefinite and continue to grow. But 30 years is a long enough time that MOST people would be either retired by then, or pretty close to it ..
I invest more in taxable accounts than the IRA/HSA/I-bond limits allow combined (even after I max them out and I do not have an 401(k)). When one can grab a 20+ year TIPS at >1.8% real yield versus 0% I-bond, it is hard to justify an I-bond even in a taxable account. Even for shorter terms, such TIPS are >2% real yield. Over short terms, the deferred taxes does little to help. Over longer terms, the I-bond returns are likely to lag the longer TIPS returns. Maybe one can roll into a better I-bond later with the present I-bond, but then the deferred taxes come and we just lost some of the advantage.

Just because it is tax-advantaged does not mean it is a good deal all the time.
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lakpr
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by lakpr »

secondopinion wrote: Mon Nov 21, 2022 1:39 pm I invest more in taxable accounts than the IRA/HSA/I-bond limits allow combined (even after I max them out and I do not have an 401(k)). When one can grab a 20+ year TIPS at >1.8% real yield versus 0% I-bond, it is hard to justify an I-bond even in a taxable account. Even for shorter terms, such TIPS are >2% real yield. Over short terms, the deferred taxes does little to help. Over longer terms, the I-bond returns are likely to lag the longer TIPS returns. Maybe one can roll into a better I-bond later with the present I-bond, but then the deferred taxes come and we just lost some of the advantage.

Just because it is tax-advantaged does not mean it is a good deal all the time.
Not quite a like-for-like comparison. With 20+ year TIPS, you have to: (a) pay taxes on the inflation rate accrual every year, so you are likely to paying the taxes at the current (presumably higher than retirement) marginal tax rate, (b) principal is not guaranteed, UNLESS held until maturity, so if you have to sell earlier than maturity you may incur a loss, (c) you can only sell the entire bond at once, not pieces of it like you can do with I-bonds.

Yes, 1.8% real return is more than 0% (or 0.4% real return with November issued I-bonds), but these three factors could favor I-bonds. To borrow your words, it may "not mean it's a good deal all the time", but neither is it a bad deal all the time.

Actually one can have BOTH, no reason to prefer only TIPS to I-bonds or vice-versa. If you do indeed invest "more in taxable than IRA/HSA/I-bond limits combined", there is a good case that can be made that I-bonds do belong in your portfolio.
Last edited by lakpr on Mon Nov 21, 2022 2:03 pm, edited 1 time in total.
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SmileyFace
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by SmileyFace »

I count ibonds in 2 places. I count them as secondary emergency funds (after 1 year) and also as part of my bond retirement AA (specifically part of my inflation-protected bond allocation). I also like the expanded tax-deffered space.
secondopinion
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by secondopinion »

lakpr wrote: Mon Nov 21, 2022 1:57 pm
secondopinion wrote: Mon Nov 21, 2022 1:39 pm I invest more in taxable accounts than the IRA/HSA/I-bond limits allow combined (even after I max them out and I do not have an 401(k)). When one can grab a 20+ year TIPS at >1.8% real yield versus 0% I-bond, it is hard to justify an I-bond even in a taxable account. Even for shorter terms, such TIPS are >2% real yield. Over short terms, the deferred taxes does little to help. Over longer terms, the I-bond returns are likely to lag the longer TIPS returns. Maybe one can roll into a better I-bond later with the present I-bond, but then the deferred taxes come and we just lost some of the advantage.

Just because it is tax-advantaged does not mean it is a good deal all the time.
Not quite a like-for-like comparison. With 20+ year TIPS, you have to: (a) pay taxes on the inflation rate accrual every year, so you are likely to paying the taxes at the current (presumably higher than retirement) marginal tax rate, (b) principal is not guaranteed, UNLESS held until maturity, so if you have to sell earlier than maturity you may incur a loss, (c) you can only sell the entire bond at once, not pieces of it like you can do with I-bonds.

Yes, 1.8% real return is more than 0% (or 0.4% real return with November issued I-bonds), but these three factors could favor I-bonds.

Actually one can have BOTH, no reason to prefer only TIPS to I-bonds or vice-versa. If you do indeed invest "more in taxable than IRA/HSA/I-bond limits combined", there is a good case that can be made that I-bonds do belong in your portfolio.
(a) The chances are that I will be paying a bit of taxes in retirement. Like I still might be in the 22% bracket versus 24%.

(b) Yes, the principal is not guaranteed. But how much is one going to pay for insurance or the embedded put option of the I-bond?

(c) One can sell TIPS in $1,000 lots (adjusting for factors and such, of course). Trust me, if I have to break into either, then it will not be for a couple of dollars. And then come the I-bond taxes if you had to break into it.

I do have both TIPS and I-bonds. But my I-bonds are a strategic holding when TIPS are merited but can be done better by I-bonds. But that is not now (at least for me).
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by German Expat »

My emergency fund is not part of my asset allocation. I do consider iBonds part of my fixed income allocation (with the low limits not a large part but plan to keep buying). I like the additional flexibility after 1 year and also the option being able to use them for education expenses.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by JayB »

willyd123 wrote: Mon Nov 21, 2022 11:27 am So I was wondering how people view iBonds in terms of their portfolio strategy? Is this a place where you stash idle cash that you otherwise would be earning a lower rate of interest in your checking account? Or are iBonds an integral part of your bond allocation? If so, do you target a certain allocation to iBonds?
We have a modest allocation to iBonds and intend to purchase another 2 x $10K in 2023. In the context of a loosely structured bond ladder, we pencil in these iBonds to be redeemed in years where we expect to have additional expenses. Right now, our target year for these is 2034, when we may move out of our current home and can't be certain about the expenses involved. However, if large unexpected expenses happen before then, we feel comfortable cashing out any/all of our iBonds as needed.
retired61
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by retired61 »

My view is that iBonds are not really bonds. They cannot be traded like real bonds. They are simply savings accounts with an interest rate linked to the CPI. I treat them as "cash" in my portfolio.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by dbr »

retired61 wrote: Tue Nov 22, 2022 3:53 pm My view is that iBonds are not really bonds. They cannot be traded like real bonds. They are simply savings accounts with an interest rate linked to the CPI. I treat them as "cash" in my portfolio.
I would end up at the same place by saying that I bonds are real asset cash, at least when the fixed rate is low or zero.

I don't own any I bonds as other things have taken the assets available to invest. That means in effect that investing in bonds, meaning TIPS, has been a choice over I bonds, so far as portfolio strategy is concerned.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by ScubaHogg »

Right now they serve as the bulk of our emergency fund. However, I'm toying with the idea of using them as part of a Liability Matching Portfolio in retirement for those years where there are no TIPS maturing. We will see.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Broken Man 1999 »

No particular strategy on my part, just needed a tax-deferred bond holding.

I bought I-Bonds in 2000 and 2001. Fixed rate was as much as 3.6%. I had no earned income, but plenty of income via LTD benefits, SSDI benefits and other insurance.

I-Bonds for me were a great choice. No need to use up limited 401k plan space (couldn't add to my 401k either) for bonds, and allowed me to put every dollar of my spousal IRA into equities.

Right now I-Bonds are around 20% of our bond allocation.

I started buying I-Bonds recently for possible use for college expenses for our grandchildren. The new I-Bonds are the safer assets that can temper the 100% equity holdings in their 529 plans, if needed. The grandchildren are beneficiaries, but I wouldn't object cashing them in whilst I'm alive for something else if they didn't need them for college.

Nice thing about I-Bonds is you can consider them a bond of one year to 30 years. Always marked to market. Pay taxes on interest each year, or let it accrue for 30 years. Versatile holding, for sure.

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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by GrowthObsessed »

I take a simplified approach to I-Bonds.. some of the conversation here seems more mid/high-level than it probably needs to be.

I've been buying I-bonds since October 2021, monthly and even weekly, in various amounts. I view(ed) it as a short/long term "savings" account with higher interest than the banks paying less than 1%, up to 1% in some online banks at the time, such as One Financial.

It was money I would (probably) not need immediate access to and as such could serve as an emergency fund after a year, with bonds "unlocking" every week or month in 2022 and beyond if I needed to redeem them.

Now my bank is up to 2.5% checking and 3% savings interest, the bonds still outperform those rates to just have cash sitting there.

Historically, I-bond rates haven't been "poor" in my opinion since 2015-early 2016, going by the rate chart history. I also don't think inflation is going to drop significantly any time soon, therefore I think i-bonds are a valuable place to let some cash sit.

While I don't know much about TIPS, I see the comment "real yield". I ask what is not real about I-Bonds >6% rate? I know the comparison that is trying to be made, the bond's base rate is 0%, but that doesn't lessen the inflation adjusted rate. You can get a 1.8% TIPS NOW, but for the past few years the TIPS rate was .125% and generally under 1% for years before that, and ibonds were all over 2% or higher. I think there's a clear "winner" for the better investment option. Am I wrong?
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by abc132 »

I view newly purchased I-Bonds as 5 year duration inflation protected fixed income with the added benefit that duration can be extended to up to 30 years from purchase. I-bonds let me match a longer duration while having access to the money earlier if needed. An I-bond that I have held for 3 years is considered a 2 year duration (5-3) that can be extended up to 27 years (30-3).

I would like enough I-bonds to handle emergency situations or unexpected spending in retirement. Something like 2-3 years of expenses is ideal. Anything more than that would depend on the current available rates (TIPS vs I-bonds), and I-bonds more than 5 years old are reinvested if the fixed I-bond rate improves and that 2-3 years of expenses has been achieved.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by evelynmanley »

GrowthObsessed wrote: Tue Nov 22, 2022 8:11 pm
While I don't know much about TIPS, I see the comment "real yield". I ask what is not real about I-Bonds >6% rate? I know the comparison that is trying to be made, the bond's base rate is 0%, but that doesn't lessen the inflation adjusted rate. You can get a 1.8% TIPS NOW, but for the past few years the TIPS rate was .125% and generally under 1% for years before that, and ibonds were all over 2% or higher. I think there's a clear "winner" for the better investment option. Am I wrong?
David Enna addresses your question here:

I Bonds vs. TIPS: Right now, it’s clearly ‘advantage TIPS’
Posted on November 20, 2022
By David Enna, Tipswatch.com

https://tipswatch.com/2022/11/20/i-bond ... tage-tips/
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by dbr »

GrowthObsessed wrote: Tue Nov 22, 2022 8:11 pm
While I don't know much about TIPS, I see the comment "real yield". I ask what is not real about I-Bonds >6% rate? I know the comparison that is trying to be made, the bond's base rate is 0%, but that doesn't lessen the inflation adjusted rate. You can get a 1.8% TIPS NOW, but for the past few years the TIPS rate was .125% and generally under 1% for years before that, and ibonds were all over 2% or higher. I think there's a clear "winner" for the better investment option. Am I wrong?
"Real" does not have the common meaning of genuine. It is a technical term meaning that dollar values have been adjusted by inflation. The nominal yield on TIPS that yield 2% real when inflation is 7% is also 9%. It is a common mistake to confuse real yield for one thing with nominal yield for something else.

You may also not be accounting for the fact that while the real rate on an I bond is indeed the fixed rate, recently 0.0% and now 0.4%, but that the real yield on TIPS is the combination of the fixed rate, around 1/8%-3/8% these days, and also the profit from buying the TIPS at a discount. A year ago TIPS auctioned or sold on the market at a premium and real yields were actually negative. Now TIPS auction at a discount and the real yields are positive. The current dividend yield on a typical TIPS fund including fixed rate and inflation increment is around 7% right now. The 9/30 dividend on SWRSX, for example, was $.222 on a price of $10.59 which is an annualized dividend of 8.4%.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by IRouteIP »

I keep half of my emergency fund in I-Bonds. The other half is in Ally Savings.

My thought process is half is immediately and easily available and the other will, at least theoretically, keep up with inflation. I am in the emergency fund is separate from the investment portfolio camp so the I-Bonds are not considered as part of my bond/fixed income component.
Last edited by IRouteIP on Wed Nov 23, 2022 9:40 am, edited 1 time in total.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by dcabler »

I consider them part of my bond/fixed income space, so in the same pile as my TIPS.

By same "pile" I mean that both will be used in retirement to create an inflation adjusted income stream. We fill up our deferred space via 401K annually so it's nice that Ibonds by their nature are also tax deferred.

I don't chase yield, so every year we max my 401K with TIPS AND we purchase the max amount of Ibonds, no matter what the yield is. We may/may not continue to purchase Ibonds in retirement - that's still TBD, but leaning towards "yes" at least for the next few years complete covering the end of our planning horizon.

We no longer rebalance between stocks and bonds, so that's not an issue.
SS+TIPS+Ibonds for an inflation adjusted income stream
Stocks for higher returns/withdrawals but with the income floor we created, we can tolerate the variability of stocks.

At this point in our life a designated chunk for emergencies is no longer needed. Between the min we keep in our checking account, credit cards, and no more than a few 1's of days from the sale of something in our taxable account, we can pretty much cover any emergency.

Cheers.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by 7eight9 »

I look at them as a piece of the fixed income side. They comprise ~17% of our portfolio. I wouldn't mind seeing that go a bit higher.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by YoungSisyphus »

I have been treating them as fixed income and part of my bond allocation and a lever I can pull to meet my allocation goals (by either selling to up equity and/or extending $30k purchases annually). And also as a "break glass" option in the event of tragic/unforeseen circumstances. If I need to do anything else it would be messing with TIPS in my Roth IRA which I am contributing aggressively in (~$33k a year).

I bought $30k of iBonds in '21, '22, and plan to do so at the beginning of the year for the next 5 years as I work towards an 80/20 equity/bond allocation. I am aiming for somewhere between $150k-$300k in iBonds which should make up anywhere between 10%-25% of my total portfolio. If I shift anywhere it will be either:
1. Shifting new mega-backdoor Roth IRA contributions to TIPS
2. Selling iBonds and upping equity exposure in taxable account

Any excess of $30k paid towards bond allocation will go into TIPS inside my Roth (I haven't done this yet and have skimmed the multiple TIPS threads here so haven't looked into mechanics of buying through Fidelity but assume it's pretty easy).
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by aj76er »

We used to consider IBonds as part of our fixed income allocation (as an extension of tax deferred space). However, I recently started viewing our IBonds as a separate source of funds outside of our “marketable portfolio” of stocks and bonds. As such, I plan to use our IBonds to provide income smoothing during the first 10yrs of retirement. In essence, they will be a “sequence of return” hedge. The cash-like property is a key feature since I can’t predict when market drawdowns will occur. I can maintain a 70/30 or 60/40 market portfolio, and if a bad sequence of returns hits, then I can supplement 20% or 30% of our spending by pulling from our store of IBonds.

The “VPW forward test” thread ( https://www.bogleheads.org/forum/viewt ... p?t=284519) by forum member longinvest gave me the idea of using IBonds in this manner. In that thread, longinvest uses an Ally savings account for income smoothing, but IBonds are better suited for this because of their inflation adjustments. The only downside to using IBonds is their purchase limits, so one must plan ahead and start saving at least 5 or 10 years ahead of retirement to build up a meaningful amount.

Because TIPS have a specific duration, they are better suited for establishing an income floor in retirement using a (non-rolling) ladder. When setting up the ladder, one needs to establish both a specific amount (per year) and number of years to fund.

In summary, IBonds and TIPS are different tools with different purposes, and I believe, one should strive to use the best tool for the job.
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by ApeAttack »

I'm only using them for my emergency fund.
Just another lazy index investor.
Blue456
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Blue456 »

I-bonds are easy to purchase, easy to cash, fully backed by US treasury and will mostly keep up with inflation. They are the perfect bond except that they can't be purchased in Fidelity. I used them as emergency fund but if I was able to purchase them in brokerage I would be happy to use them as my main fixed income.
dcabler
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by dcabler »

Kitty Telltales wrote: Mon Nov 21, 2022 1:23 pm Instead of the I Bond vs TIPS route, I am combining both and building a bonds ladder. There are years where TIPS maturities aren’t available, so I am plugging my I Bonds into that gap in my withdraw schedule. I am able to pick up the TIPS in my tax-deferred space as suggested.

I am working on building a 20 year ladder for now.
You know, I'm an avid multiple-times-per-day reader of this forum. And it never occurred to me to use Ibonds to plug the TIPS hole for 2033-39. Thank you for that - this now goes into my "notes-to-self". :D
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anon_investor
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by anon_investor »

ApeAttack wrote: Wed Nov 23, 2022 11:11 am I'm only using them for my emergency fund.
+1. This is pretty much how I use them.
GaryA505
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by GaryA505 »

I Bonds can also be 1035-exchanged into a 529 plan.
Get most of it right and don't make any big mistakes. Other things being equal (or close enough), simpler is better.
lakpr
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by lakpr »

GaryA505 wrote: Thu Nov 24, 2022 1:25 pm I Bonds can also be 1035-exchanged into a 529 plan.
Only if you meet certain income limits. Cut off for 2022 starts around $128k and phases out completely at $158k Adjusted Gross Income for a couple filing Married Filing Jointly. Of course, those limits are adjusted for inflation by IRS annually.

https://www.savingforcollege.com/articl ... a-529-plan
GaryA505
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by GaryA505 »

lakpr wrote: Thu Nov 24, 2022 2:14 pm
GaryA505 wrote: Thu Nov 24, 2022 1:25 pm I Bonds can also be 1035-exchanged into a 529 plan.
Only if you meet certain income limits. Cut off for 2022 starts around $128k and phases out completely at $158k Adjusted Gross Income for a couple filing Married Filing Jointly. Of course, those limits are adjusted for inflation by IRS annually.

https://www.savingforcollege.com/articl ... a-529-plan
Yes, I forgot about that. In my case I'll be retired when my kids are in college, so I won't have a problem with the $128k AGI limit.
Get most of it right and don't make any big mistakes. Other things being equal (or close enough), simpler is better.
Kinkajou82
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by Kinkajou82 »

willyd123 wrote: Mon Nov 21, 2022 11:27 am I bought iBonds in late 2021 and again in early 2022 and now I am trying to determine if I buy more in 2023.

I know that the current iBond interest rate is historically pretty high which is great but of course that's due to high inflation and so my real return will be zero. With equities and other bonds, you at least have the potential of earning a real return (of course you can also have a real loss). So I was wondering how people view iBonds in terms of their portfolio strategy?
I think I'm similar in the way that I first bought I Bonds in 2021 and then again in 2022 and will again in 2023.

For me at least this is an easy choice: I consider I Bonds as part of my fixed income allocation. My IPS makes the (pessimistic) prediction that any bond index funds will lag inflation. Therefore, if I can get a guanteed 0% real return, I consider myself ahead of the game. (Even better if my personal inflation lags real inflation)

I'm in the accumulation phase so my plan is to "glide up" with I Bonds over the years in order to deal with their purchase limits. With any luck by the time of my retirement my fixed income allocation can be entirely made up of I Bonds, but if not I can plug the gaps with total market bond index funds.

I consider I Bonds liquidity a very nice feature, but not central to my decision to buy them. I DO very much like their tax deferral properties though, and their simplicity is a major reason I prefer them to TIPS.
chassis
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Re: iBonds [How are they viewed as part of your portfolio strategy?]

Post by chassis »

willyd123 wrote: Mon Nov 21, 2022 11:27 am I bought iBonds in late 2021 and again in early 2022 and now I am trying to determine if I buy more in 2023.

I know that the current iBond interest rate is historically pretty high which is great but of course that's due to high inflation and so my real return will be zero. With equities and other bonds, you at least have the potential of earning a real return (of course you can also have a real loss). So I was wondering how people view iBonds in terms of their portfolio strategy? Is this a place where you stash idle cash that you otherwise would be earning a lower rate of interest in your checking account? Or are iBonds an integral part of your bond allocation? If so, do you target a certain allocation to iBonds?

Thanks.
It’s a bond. Fixed income. Generally liquid.
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