Are you buying EE bonds in 2023?

[GreendaleCC]

I'm curious to hear reasoning behind your EE bond purchases this year, given the higher interest rates associated with competing fixed income investments currently.

If you are NOT buying EE bonds, there's no need to post a reply here (thanks in advance).

[atl2005]

Yes my spouse and I have already bought 10k each for the year. We are creating a pension to guarantee ourselves about 3k a month depending on federal tax brackets from age 55-65.

We are 4 years into this 10 year plan and have no reason to stop contributing now. The EE bonds fit into the fixed income portion of our AA so it works well for us. We are also buying 5 year CDs each year with our fixed income. The rest all goes into the S and P.

We hope to cut way back with our jobs around age 50-55 so this will help carry us to full retirement.

[GreendaleCC]

Yes my spouse and I have already bought 10k each for the year. We are creating a pension to guarantee ourselves about 3k a month depending on federal tax brackets from age 55-65.

We are 4 years into this 10 year plan and have no reason to stop contributing now. The EE bonds fit into the fixed income portion of our AA so it works well for us. We are also buying 5 year CDs each year with our fixed income. The rest all goes into the S and P.

We hope to cut way back with our jobs around age 50-55 so this will help carry us to full retirement.

Thanks! So it sounds like you're late 30s / about to turn 40?

[atl2005]

Yes my spouse and I have already bought 10k each for the year. We are creating a pension to guarantee ourselves about 3k a month depending on federal tax brackets from age 55-65.

We are 4 years into this 10 year plan and have no reason to stop contributing now. The EE bonds fit into the fixed income portion of our AA so it works well for us. We are also buying 5 year CDs each year with our fixed income. The rest all goes into the S and P.

We hope to cut way back with our jobs around age 50-55 so this will help carry us to full retirement.

Thanks! So it sounds like you're late 30s / about to turn 40?

Yes that's correct. Hope to work full time another 8-10 years then start cutting way back in our early 50s. We have about 23x annual expenses saved up so we aren't overly aggressive with our AA. My career is very stressful so I'm not planning on working longer than I financially need.

[Metsfan91]

No. I am not into bonds.

[GreendaleCC]

No. I am not into bonds.

That’s ok, I am not into the Mets.

[SnowBog]

I've already purchased mine. My general reasoning is already laid out here: viewtopic.php?t=358793#p6243130

FWIW spouse is no longer buying EE Bonds. They are within 20 years of when they need to claim their pension. Our intent was to use EE to help bridge to pension/social security. So for spouse, there is no longer a need. For myself, I can defer/delay longer - so I have a few more years until I'm within my 20 year threshold.

But I think your implied question is why stick with EE Bonds vs. a different alternative for this year/rung. Arguably, the only similar alternative is 20 year Zeros.

I can't recall what they were when I bought... But they are now around 4.46% according to https://fixedincome.fidelity.com/ftgw/fi/FILanding.

For myself, the slightly higher rate wasn't enough to justify the extra complexity and taxes.

Not to mention, part of my interest in EE Bonds to begin with was the predictability. I know the $10k I bought this year with be worth at least $20k in 20 years, and I can factor that into things like VPW and other retirement calculators, where I model my EE Bonds not as part of my portfolio, but as a non-Cola income stream of $20k year (assuming a $10k/year purchase). Having 1 rung at a different return makes that more complex. Again, for what to me seemes a minor rate difference, it wasn't worth that complexity.

But I can completely understand the rationale of others who want to squeeze out a potentially better rate (especially if they are in lower tax brackets where more is that difference will remain).

[GreendaleCC]

I've already purchased mine. My general reasoning is already laid out here: viewtopic.php?t=358793#p6243130

Thanks again for writing this!

[SnowBog]

I've already purchased mine. My general reasoning is already laid out here: viewtopic.php?t=358793#p6243130

Thanks again for writing this!

I was inspired by Mel's I Bond post and his articles over the years on EE Bonds as a DIY Annuity. His I Bond post seemed a perfect structure to "borrow", so I did my best to create the EE Bond version.

The luster of EE Bonds themselves have definitely lessened with rates on alternatives being as high as they are now. But I don't think that diminishes the overarching strategy and benefits of a "DIY Annuity" approach. If anything, it gives some more options to do so...

But as I said, the rates weren't high enough for me personally to add extra complexity. So I just stuck with my original plan. We'll have "enough" either way.

[Leif]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

[Lastrun]

....
For myself, the slightly higher rate wasn't enough to justify the extra complexity and taxes.
....

I discussed this with my DW earlier this year. We stayed with the EEs. She understands them and the annuity purpose they serve.

[Grt2bOutdoors]

No. I am not into bonds.

That’s ok, I am not into the Mets.

Lol.

[Grt2bOutdoors]

I’m still buying them. I don’t think the additional yield on a 20 year zero currently offered compensates me for the higher taxes today when I expect to be in a lower tax bracket when they mature. If rates go to 6 or 7% it would be a different story.

[Pizza_and_Beer]

No. I am not into bonds.

That’s ok, I am not into the Mets.

I love both bonds and the Mets.

[Cheez-It Guy]

Bonds and the Mets go together like pizza and beer!

[Hubris]

We just wrapped up selling off our EE bonds, all acquired over the last 3 yrs and are permanently abandoning our “DIY annuity” plan. Due to the overall changes in the interest rate environment, a substantial positive and unexpected financial event and only being 3 yrs into the 10 yr purchase plan. And, while we didn’t make any meaningful returns in the 3 yrs, we also got 100% of principal back (along with a trivial amount of interest.)

[StrangePenguin]

If you are NOT buying EE bonds, there's no need to post a reply here (thanks in advance).

Sorry to violate this request but...

Like several people in this thread, my plan is to build a DIY annuity for my 60s by purchasing zero-coupon bonds in my 40s. I started with EE bonds a couple years ago. I like the idea of going to a long duration to match my retirement timeline, with a duration that will automatically shrink as I approach that date. (I am also buying I-bonds to go along with them -- instead of trying to guess future inflation I am just covering all of the bases.) This year I decided to buy a 20 year STRIP instead of the EE bonds because I could get a better rate with the STRIP. I bought it in a tax-advantaged account to avoid the tax issues. So that's obviously a constraint -- I had to have the space and flexibility in tax-advantaged space. If I want to continue this next year I'm probably going to have to open a self-directed brokerage account within my 401k.

I will also note that as it was my first time buying any bonds on the secondary market, I found it to be relatively tricky compared to just about any transaction I've made before. Having to examine the depth of book, etc was not something I had dealt with before. My first order didn't go through and I had to try again. (This was at Fidelity.) As clunky as Treasury Direct is, buying EE bonds is pretty simple compared to trading bonds (maybe fairly low liquidity ones) on the secondary market.

[GreendaleCC]

If you are NOT buying EE bonds, there's no need to post a reply here (thanks in advance).

Sorry to violate this request but...

Thank you, I approve of this violation

[dan7800]

Dumb question.

- An ee in 20 years will return ~ 3.54%
- You can buy a 20 year at 4.1

Why buy an EE (outside of education etc...)?

[TacoLover]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

[TacoLover]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

Over a 20 year period the risk of the market being down is nearly zero. I wonder what your ROI would be in sp 500

[SnowBog]

Dumb question.

- An ee in 20 years will return ~ 3.54%
- You can buy a 20 year at 4.1

Why buy an EE (outside of education etc...)?

An EE Bond incurs $0 taxes - until you sell it. In essence, they extend your "tax-advantaged" space.

A 20-year Zero has a tax-drag all 20 years (unless you have access to and space to hold them in a tax-advantaged account, but that means "less space" for other investments).

In my case, I'm likely in my highest taxed years, and when I redeem my EE Bonds I'll likely be in my lowest taxed years. So the "after-tax" results are that EE Bonds likely have a better return for us. But even if they are slightly behind, for our plans/needs, they are still "enough" and avoid adding complexity in the attempt of getting a likely negligible after-tax difference.

[CletusCaddy]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

Over a 20 year period the risk of the market being down is nearly zero. I wonder what your ROI would be in sp 500

If you need the money in 20 years you would not be holding the S&P 500 for all 20 years. You would do a glide path down to zero percent equities in year 20. How would that 20 year glide path perform against EE bonds? I think it’s not so obvious.

[Metsfan91]

No. I am not into bonds.

That’s ok, I am not into the Mets.

LOL.

[SnowBog]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

IMHO this is a false comparison.

But to play along, sure, holding equities for 20 years is highly likely to result in a larger balance than holding EE Bonds for 20 years. That is a nearly universal truth for all forms of fixed income - including EE Bonds. Which is why the bulk of my investments are in equities.

My investments in EE Bonds (and for that matter other fixed income) isn't because I think they'll "do better" than equities (they likely won't). But my EE Bonds provide a "predictable income stream", in a similar way (but without the COLA and "lifetime" duration) as social security and/or a pension provides. That "income" is immune to market returns, won't matter if the markets crater just before retirement, we'll still get the income.

As explained in the EE Bond Manifesto I posted in my initial reply, this unique characteristic (especially when combined with I Bonds to add inflation protection) allows us to create "lifetime income" via a "DIY Annuity" - with our EE/I bonds providing an income floor from retirement until our delayed social security and pensions kick in.

I actively acknowledge - and accept - that this approach "costs us", we'll likely have less in our bank accounts when we die then if we just avoided this strategy. But we'll have "enough". And more importantly to us, this approach helps protect our time line. In an equity heavy AA, a poorly timed market downturn could make it problematic to retire when we "want". In an early retirement scenario, I'd have a hard time convincing myself to retire if my portfolio just fell by say 50% - with no end/recovery in sight. I'd more than likely feel obligated to continue working (or return to work) until things recovered.

But with the DIY Annuity approach, all of our "essential" expenses will be covered by EE/I bonds (regardless of what's happening in the markets), decreasing the dependence on the rest of our portfolio (and largely only for discretionary expenses). We'll be prepared to retire when we want, without concern about market conditions or SORR (not that our approach magically removes SORR - it does not - but our "essential" expenses have been made immune to SORR, we can live with the impact to discretionary spending).

[GreendaleCC]

Dumb question.

- An ee in 20 years will return ~ 3.54%
- You can buy a 20 year at 4.1

Why buy an EE (outside of education etc...)?

One scenario is when you don't have any additional Traditional IRA / 401k / 403b space for fixed income, and only want to dedicate Roth space to equity. Along with I bonds, EE bonds are one option to "expand" tax deferred space for bonds.

[GreendaleCC]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

Good comment, however, I suspect that the vast majority of Bogleheads buying EE bonds are doing so with the following two assumptions:

1. They intend to hold EE bonds for 20 years. They do not expect to need the money before then.
2. EE bonds are part of their fixed income allocation, not their equity allocation. Investors have fixed income positions they hold for 20+ years.

These are the unspoken assumptions I should have included in my OP.

[Leif]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

Over a 20 year period the risk of the market being down is nearly zero. I wonder what your ROI would be in sp 500

Using that logic I would have been 100% S&P 500. You never know what the future holds. I wanted a sure return. S&P 500 is only sure in retrospect.

[TacoLover]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

IMHO this is a false comparison.

But to play along, sure, holding equities for 20 years is highly likely to result in a larger balance than holding EE Bonds for 20 years. That is a nearly universal truth for all forms of fixed income - including EE Bonds. Which is why the bulk of my investments are in equities.

My investments in EE Bonds (and for that matter other fixed income) isn't because I think they'll "do better" than equities (they likely won't). But my EE Bonds provide a "predictable income stream", in a similar way (but without the COLA and "lifetime" duration) as social security and/or a pension provides. That "income" is immune to market returns, won't matter if the markets crater just before retirement, we'll still get the income.

As explained in the EE Bond Manifesto I posted in my initial reply, this unique characteristic (especially when combined with I Bonds to add inflation protection) allows us to create "lifetime income" via a "DIY Annuity" - with our EE/I bonds providing an income floor from retirement until our delayed social security and pensions kick in.

I actively acknowledge - and accept - that this approach "costs us", we'll likely have less in our bank accounts when we die then if we just avoided this strategy. But we'll have "enough". And more importantly to us, this approach helps protect our time line. In an equity heavy AA, a poorly timed market downturn could make it problematic to retire when we "want". In an early retirement scenario, I'd have a hard time convincing myself to retire if my portfolio just fell by say 50% - with no end/recovery in sight. I'd more than likely feel obligated to continue working (or return to work) until things recovered.

But with the DIY Annuity approach, all of our "essential" expenses will be covered by EE/I bonds (regardless of what's happening in the markets), decreasing the dependence on the rest of our portfolio (and largely only for discretionary expenses). We'll be prepared to retire when we want, without concern about market conditions or SORR (not that our approach magically removes SORR - it does not - but our "essential" expenses have been made immune to SORR, we can live with the impact to discretionary spending).

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

[TacoLover]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

Over a 20 year period the risk of the market being down is nearly zero. I wonder what your ROI would be in sp 500

Using that logic I would have been 100% S&P 500. You never know what the future holds. I wanted a sure return. S&P 500 is only sure in retrospect.

So far for the about 200 twenty year periods of time in the market it has never been down more than a few basis points. So if you’re holding for 20 years historically you’re nearly guaranteed to be up. Intellectually yes money you don’t need for twenty years should be in a broad based index equity fund.

[TacoLover]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

Good comment, however, I suspect that the vast majority of Bogleheads buying EE bonds are doing so with the following two assumptions:

1. They intend to hold EE bonds for 20 years. They do not expect to need the money before then.
2. EE bonds are part of their fixed income allocation, not their equity allocation. Investors have fixed income positions they hold for 20+ years.

These are the unspoken assumptions I should have included in my OP.

Right but IF this is money for twenty years from now intellectually you are nearly guaranteed to have better ROI in equities. To my mind equities is for needs over 15-20 y from now. Bonds 5-10. Cash equivalents 0-3 or 0-5. That’s been my plan so far which so far meant around 100 percent equities. As I’m getting older I’m slowly shifting into bonds.

[GreendaleCC]

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

How old are you? Are you invested 100% in equities?

I appreciate your commentary, but it is super easy to find threads here on why EE bonds are trash. I am looking for a discussion on their merits, given the current interest rate environment.

[Leif]

So far for the about 200 twenty year periods of time in the market it has never been down more than a few basis points. So if you’re holding for 20 years historically you’re nearly guaranteed to be up. Intellectually yes money you don’t need for twenty years should be in a broad based index equity fund.

So if I invested in a 20 year period that was down a few basis points I would have less than I started with instead of double, right? Plus the future is not guaranteed from the past.

[GreendaleCC]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

Good comment, however, I suspect that the vast majority of Bogleheads buying EE bonds are doing so with the following two assumptions:

1. They intend to hold EE bonds for 20 years. They do not expect to need the money before then.
2. EE bonds are part of their fixed income allocation, not their equity allocation. Investors have fixed income positions they hold for 20+ years.

These are the unspoken assumptions I should have included in my OP.

Right but IF this is money for twenty years from now intellectually you are nearly guaranteed to have better ROI in equities. To my mind equities is for needs over 15-20 y from now. Bonds 5-10. Cash equivalents 0-3 or 0-5. That’s been my plan so far which so far meant around 100 percent equities. As I’m getting older I’m slowly shifting into bonds.

That is a valid strategy, but clearly not universally adopted. Examples: me, plus Fidelity and Vanguard Target Date Retirement fund managers.

Is the goal of your commentary in this thread to somehow convince fixed income investors to ignore their personal risk tolerance?

[Grt2bOutdoors]

I think EE bonds are for those that would like the money in 20 years and are planning for kids college. I bought some EE bonds 20 years ago that are just doubling now. No educational use, so I don't get the tax break, but doubling over 20 years turned out to be a good deal.

Over a 20 year period the risk of the market being down is nearly zero. I wonder what your ROI would be in sp 500

Do you want to be 75 and find out your retirement account fell 50%, but don’t worry, it will come back when you have no need for money - in 20 years?

[aristotelian]

Nope, and I am regretting having bought in '22 and '21 (not sure about '20). Better question is whether it is worth liquidating EE Bonds that are a couple of years old.

[Grt2bOutdoors]

Dumb question.

- An ee in 20 years will return ~ 3.54%
- You can buy a 20 year at 4.1

Why buy an EE (outside of education etc...)?

One scenario is when you don't have any additional Traditional IRA / 401k / 403b space for fixed income, and only want to dedicate Roth space to equity. Along with I bonds, EE bonds are one option to "expand" tax deferred space for bonds.

Another scenario, zero coupon or STRIPs requires the annual reporting of accrued interest if held in a taxable account. For those who are currently employed, the interest declared on your tax return is taxable at your regular income tax rate. For those in higher brackets, you are subject to investment income surtax of 3.8% plus .009% Medicare tax. Those in retirement will likely be in a lower tax bracket.

Why pay more now?

[GreendaleCC]

Nope, and I am regretting having bought in '22 and '21 (not sure about '20). Better question is whether it is worth liquidating EE Bonds that are a couple of years old.

Are you unsure whether you bought them in 2020, or unsure whether you regret your 2020 purchase?

[Grt2bOutdoors]

Nope, and I am regretting having bought in '22 and '21 (not sure about '20). Better question is whether it is worth liquidating EE Bonds that are a couple of years old.

If you have a better option, sure, go ahead and liquidate. You can put the bond back with no loss to principal value unlike those holding bond funds the last 2 years.

[Harmanic]

Bonds and the Mets go together like pizza and beer!

Bobby Bonilla would approve.

[SnowBog]

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

All depends on perspective...

If someone is choosing between contributing $10k to EE Bonds or their tax-advantaged accounts, that's a no brainer - tax-advantaged accounts come first!

We've worked and saved hard, living below our means, and growing our careers/income such that we can max out 2X Roth (Backdoor), HSA, 2X 401k, Mega Backdoor Roth, as well as contribute to our taxable every year. Thus the amount that goes into EE & I Bonds is not a "significant" amount of money to us when viewed as a % of annual savings or as a % of our total portfolio.

Ideally, our retirement will last 40+ years - meaning we need money this year, next year, 5 years from now, 10 years from now, etc. That's why it's common for people to have a "balanced" portfolio in retirement.

How you get there differs for people. Yes, EE Bonds require you start that process 20 years in advance - which may not be of interest to everyone. But unless you are 100/0, and stay 100/0 your entire life, at some point you are going to start buying fixed income investments. Those looking at EE Bonds are just considering them as part of that fixed income allocation.

[GreendaleCC]

Dumb question.

- An ee in 20 years will return ~ 3.54%
- You can buy a 20 year at 4.1

Why buy an EE (outside of education etc...)?

One scenario is when you don't have any additional Traditional IRA / 401k / 403b space for fixed income, and only want to dedicate Roth space to equity. Along with I bonds, EE bonds are one option to "expand" tax deferred space for bonds.

Another scenario, zero coupon or STRIPs requires the annual reporting of accrued interest if held in a taxable account. For those who are currently employed, the interest declared on your tax return is taxable at your regular income tax rate. For those in higher brackets, you are subject to investment income surtax of 3.8% plus .009% Medicare tax. Those in retirement will likely be in a lower tax bracket.

Why pay more now?

In typically Boglehead fashion, I don't want to pay more now.

[aristotelian]

Nope, and I am regretting having bought in '22 and '21 (not sure about '20). Better question is whether it is worth liquidating EE Bonds that are a couple of years old.

Are you unsure whether you bought them in 2020, or unsure whether you regret your 2020 purchase?

Unsure about the regret. I definitely bought them I am still ahead (assuming notional 3.5% interest) what I could have made by sitting in cash and then buying Treasuries now but there may be a point where that's not the case.

[aristotelian]

Nope, and I am regretting having bought in '22 and '21 (not sure about '20). Better question is whether it is worth liquidating EE Bonds that are a couple of years old.

If you have a better option, sure, go ahead and liquidate. You can put the bond back with no loss to principal value unlike those holding bond funds the last 2 years.

I hate to give up the notional interest on the '20 and '21 bond. However, now that I think about it, I could add to my TIAA Traditional allocation in my employer account and buy stocks with the cash from the EE Bonds. Plus grab a brokerage bonus in the process. I think you have talked me into it.

[CletusCaddy]

I would not buy EE bonds today.

Instead I would buy a 10 year MYGA from A rated insurer paying 5.45% tax deferred. And then bet that I can roll it over into another 10 year MYGA that overall would beat the 3.5% EE return.

[TacoLover]

Same sorry to violate the request -

From my perspective ee bonds are a bad deal unless you hold for something like 20 years. After 20 years the ROI is something around 3 percent. Money doubles at the end of the terms. But if you are for sure holding for 20 years to my perspective equities is the more rational choice. It is extremely unlikely your return will be better with ee vs equities.

Good comment, however, I suspect that the vast majority of Bogleheads buying EE bonds are doing so with the following two assumptions:

1. They intend to hold EE bonds for 20 years. They do not expect to need the money before then.
2. EE bonds are part of their fixed income allocation, not their equity allocation. Investors have fixed income positions they hold for 20+ years.

These are the unspoken assumptions I should have included in my OP.

Right but IF this is money for twenty years from now intellectually you are nearly guaranteed to have better ROI in equities. To my mind equities is for needs over 15-20 y from now. Bonds 5-10. Cash equivalents 0-3 or 0-5. That’s been my plan so far which so far meant around 100 percent equities. As I’m getting older I’m slowly shifting into bonds.

That is a valid strategy, but clearly not universally adopted. Examples: me, plus Fidelity and Vanguard Target Date Retirement fund managers.

Is the goal of your commentary in this thread to somehow convince fixed income investors to ignore their personal risk tolerance?

Hi. I THINK this is what people call a bucket strategy but I’m not sure. I know of course that we need to prepare for the market dropping 50% at any time. Over any 20 year duration. The market has never been down. Equities are volatile. Bonds are much less volatile. Cash equivalents are essentially non-volatile. Thus it seems to me Cash for 0 to 3 years, bonds for about 5 to 10 years, in equities for everything longer than that.

I don’t think I am really trying to convince anybody of anything. This has been my strategy. My wrist tolerance has been pretty high, however. If the overall return on the stock market has been something like 9% average over the life of the market, if there were a 50% drop at the time of retirement this would still only bring it down to the level where the people in bonds have always been. I think some people have mentioned that if you have enough money saved up, it doesn’t make sense to switch out of equities ever. Meaning, if even after a 50% drop in your portfolio, you will still be comfortable statistically you will do better over long periods of time, inequities more than bonds, and certainly more than cash equivalents.

We all have different risk toleranceas, however. I would never recommend someone invest outside his tolerance.

[FrodoKenobi]

Bonds and the Mets go together like pizza and beer!

Bobby Bonilla would approve.

Well played. His contract alone is a good reminder that Mets rhymes with Jets and Nets. Sigh.

[TacoLover]

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

All depends on perspective...

If someone is choosing between contributing $10k to EE Bonds or their tax-advantaged accounts, that's a no brainer - tax-advantaged accounts come first!

We've worked and saved hard, living below our means, and growing our careers/income such that we can max out 2X Roth (Backdoor), HSA, 2X 401k, Mega Backdoor Roth, as well as contribute to our taxable every year. Thus the amount that goes into EE & I Bonds is not a "significant" amount of money to us when viewed as a % of annual savings or as a % of our total portfolio.

Ideally, our retirement will last 40+ years - meaning we need money this year, next year, 5 years from now, 10 years from now, etc. That's why it's common for people to have a "balanced" portfolio in retirement.

How you get there differs for people. Yes, EE Bonds require you start that process 20 years in advance - which may not be of interest to everyone. But unless you are 100/0, and stay 100/0 your entire life, at some point you are going to start buying fixed income investments. Those looking at EE Bonds are just considering them as part of that fixed income allocation.

I get it. To my mind money that Hass to be there within the next 3 to 5 years. Can’t be in vehicles with any significant risk. Which means cash equivalents. Presumably these vehicles lose value every day because of inflation. So you don’t want that much there. For money that you need to say under 10 years from now it could be a little up or down, but it can’t be gone. That money has to keep up with inflation. That to my mind is where bonds are useful. But long-term if you were looking at a 40 year retirement Money that you will need 20 or 30 or 40 years from now. Does not need to keep up with inflation. It needs to grow. To my mind bonds are not for growth. They are for keeping up with inflation. So for money that you need a long time from now , say 20 years from now or more, the reason that should be in equities to my mind is because that is money that has to grow not just keep up with inflation.

That is how I look at it at least. I will be the first to admit that I do not know everything and that I am not the sole arbiter of what is right and what is wrong. But that has been how I approach things. I try to keep an open mind, but if not yet found a reason not to execute that plan.

[GreendaleCC]

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

All depends on perspective...

If someone is choosing between contributing $10k to EE Bonds or their tax-advantaged accounts, that's a no brainer - tax-advantaged accounts come first!

We've worked and saved hard, living below our means, and growing our careers/income such that we can max out 2X Roth (Backdoor), HSA, 2X 401k, Mega Backdoor Roth, as well as contribute to our taxable every year. Thus the amount that goes into EE & I Bonds is not a "significant" amount of money to us when viewed as a % of annual savings or as a % of our total portfolio.

Ideally, our retirement will last 40+ years - meaning we need money this year, next year, 5 years from now, 10 years from now, etc. That's why it's common for people to have a "balanced" portfolio in retirement.

How you get there differs for people. Yes, EE Bonds require you start that process 20 years in advance - which may not be of interest to everyone. But unless you are 100/0, and stay 100/0 your entire life, at some point you are going to start buying fixed income investments. Those looking at EE Bonds are just considering them as part of that fixed income allocation.

I get it. To my mind money that Hass to be there within the next 3 to 5 years. Can’t be in vehicles with any significant risk. Which means cash equivalents. Presumably these vehicles lose value every day because of inflation. So you don’t want that much there. For money that you need to say under 10 years from now it could be a little up or down, but it can’t be gone. That money has to keep up with inflation. That to my mind is where bonds are useful. But long-term if you were looking at a 40 year retirement Money that you will need 20 or 30 or 40 years from now. Does not need to keep up with inflation. It needs to grow. To my mind bonds are not for growth. They are for keeping up with inflation. So for money that you need a long time from now , say 20 years from now or more, the reason that should be in equities to my mind is because that is money that has to grow not just keep up with inflation.

That is how I look at it at least. I will be the first to admit that I do not know everything and that I am not the sole arbiter of what is right and what is wrong. But that has been how I approach things. I try to keep an open mind, but if not yet found a reason not to execute that plan.

Thank you for this follow up

[Mel Lindauer]

The idea of locking up any significant t amount of money for 20 y for 3.5 percent just makes me nauseous. Or yes I can pull it out at any time but ROI goes to almost zero. I guess it would be like put half in the market and hold half as cash. You get the same benefits and same ROI. For me that approach doesn’t make sense. If you need the money in under ten years it shouldn’t be in equities. If you need the money in twenty years it shouldn’t be in bonds it should be in equities.

All depends on perspective...

If someone is choosing between contributing $10k to EE Bonds or their tax-advantaged accounts, that's a no brainer - tax-advantaged accounts come first!

We've worked and saved hard, living below our means, and growing our careers/income such that we can max out 2X Roth (Backdoor), HSA, 2X 401k, Mega Backdoor Roth, as well as contribute to our taxable every year. Thus the amount that goes into EE & I Bonds is not a "significant" amount of money to us when viewed as a % of annual savings or as a % of our total portfolio.

Ideally, our retirement will last 40+ years - meaning we need money this year, next year, 5 years from now, 10 years from now, etc. That's why it's common for people to have a "balanced" portfolio in retirement.

How you get there differs for people. Yes, EE Bonds require you start that process 20 years in advance - which may not be of interest to everyone. But unless you are 100/0, and stay 100/0 your entire life, at some point you are going to start buying fixed income investments. Those looking at EE Bonds are just considering them as part of that fixed income allocation.

I get it. To my mind money that Hass to be there within the next 3 to 5 years. Can’t be in vehicles with any significant risk. Which means cash equivalents. Presumably these vehicles lose value every day because of inflation. So you don’t want that much there. For money that you need to say under 10 years from now it could be a little up or down, but it can’t be gone. That money has to keep up with inflation. That to my mind is where bonds are useful. But long-term if you were looking at a 40 year retirement Money that you will need 20 or 30 or 40 years from now. Does not need to keep up with inflation. It needs to grow. To my mind bonds are not for growth. They are for keeping up with inflation. So for money that you need a long time from now , say 20 years from now or more, the reason that should be in equities to my mind is because that is money that has to grow not just keep up with inflation.

That is how I look at it at least. I will be the first to admit that I do not know everything and that I am not the sole arbiter of what is right and what is wrong. But that has been how I approach things. I try to keep an open mind, but if not yet found a reason not to execute that plan.

Thank you for this follow up

For the money that you'll need some time between one and 30 years, that you want to keep up with inflation and that is guaranteed to never lose value, I Bonds are the investment that will do the job for you.