Gee, I coulda had an I-Bond instead!

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Browser
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Gee, I coulda had an I-Bond instead!

Post by Browser »

I found this to be an eye-opening chart. Over the last 15 years, systematic investing in stocks has just managed to catch up with sytematic investing in I-Bonds instead. Who knew?
The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.
The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through May 1, 2013.
Image

http://www.savings-bond-advisor.com/i-b ... ck-market/
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

Browser wrote:I found this to be an eye-opening chart. Over the last 15 years, systematic investing in stocks has just managed to catch up with sytematic investing in I-Bonds instead. Who knew?
The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.
The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through May 1, 2013.
Image

http://www.savings-bond-advisor.com/i-b ... ck-market/
Mel knew. :-)
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runner9
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Re: Gee, I coulda had an I-Bond instead!

Post by runner9 »

I wonder if this is "cherry picking" the date. Series I purchased in Sept 1998 still pays 4.6% and paid 6.51% less than 2 years ago.

We purchased our only I bonds in July, 2012 and it currently pays 1.18%, while our IRAs and 457 in stocks have returned 20% or so in 2013.
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Re: Gee, I coulda had an I-Bond instead!

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Re: Gee, I coulda had an I-Bond instead!

Post by Imperabo »

Are US large cap stocks my only choice?
Do I have to pay taxes?
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Re: Gee, I coulda had an I-Bond instead!

Post by Ice-9 »

It's not cherry-picking; it charts contributions ever since I-Bonds were first introduced.

See what happened last time the S&P surpassed I-bond return since 1998? Hmm, I hope this doesn't prove to be some sort of technical indicator. :shock: "The Dreaded Boglehead Cross!"
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Re: Gee, I coulda had an I-Bond instead!

Post by madbrain »

Ice-9 wrote:It's not cherry-picking; it charts contributions ever since I-Bonds were first introduced.

See what happened last time the S&P surpassed I-bond return since 1998? Hmm, I hope this doesn't prove to be some sort of technical indicator. :shock: "The Dreaded Boglehead Cross!"
Yes, time to rebalance your stocks into I-bonds.

Oops, you can't do that due to the annual purchase limit on I-bonds.
Which the article quoted fails to mention. The limit makes the comparison much less relevant.
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

madbrain wrote:
Ice-9 wrote:It's not cherry-picking; it charts contributions ever since I-Bonds were first introduced.

See what happened last time the S&P surpassed I-bond return since 1998? Hmm, I hope this doesn't prove to be some sort of technical indicator. :shock: "The Dreaded Boglehead Cross!"
Yes, time to rebalance your stocks into I-bonds.

Oops, you can't do that due to the annual purchase limit on I-bonds.
Which the article quoted fails to mention. The limit makes the comparison much less relevant.
Individuals could purchase up to $30K annually until 2008, after that $10K. So, let's see: Had you purchased your limit, you could have invested $360K so far. The article, which was penned in May, 2013, stated that as of that date the value of your I-Bond portfolio would have been 44.9% more than the amount you invested. That would have been about $522K. I wonder if that's how much Mel has put in? Who needed stocks the last 15 years??? Rebalance????
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Re: Gee, I coulda had an I-Bond instead!

Post by madbrain »

Browser wrote:
madbrain wrote:
Ice-9 wrote:It's not cherry-picking; it charts contributions ever since I-Bonds were first introduced.

See what happened last time the S&P surpassed I-bond return since 1998? Hmm, I hope this doesn't prove to be some sort of technical indicator. :shock: "The Dreaded Boglehead Cross!"
Yes, time to rebalance your stocks into I-bonds.

Oops, you can't do that due to the annual purchase limit on I-bonds.
Which the article quoted fails to mention. The limit makes the comparison much less relevant.
Individuals could purchase up to $30K annually until 2008, after that $10K. So, let's see: Had you purchased your limit, you could have invested $360K so far. The article, which was penned in May, 2013, stated that as of that date the value of your I-Bond portfolio would have been 44.9% more than the amount you invested. That would have been about $522K. I wonder if that's how much Mel has put in? Who needed stocks the last 15 years??? Rebalance????
I had never heard of I-bonds before 2008. I thought the limit was always $10k which is too low.
The rebalance comment was mainly because the "stocks" line in the graph is once again higher than the "i-bonds" line, it seems the last couple times int happened, in 1999 and 2007, big market crashes followed. If you are mostly in stocks today and want to rebalance into i-bonds, you can't.

It's also not possible to buy i-bonds in a 401k or IRA.
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Re: Gee, I coulda had an I-Bond instead!

Post by bhsince87 »

Key line from the article:

"At any rate, no matter what this graph says, don't buy Savings Bonds expecting to outperform stocks.
Buy Savings Bonds because you can't get back less than you put in. "

That's sound advice!
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

It's also not possible to buy i-bonds in a 401k or IRA.
Yeh, bummer. But they act as a tax-deferred investment for 30 years. So, could be an option for someone as an alternative to all or part of putting money into a traditional IRA (after tax contributions). I wish I'd known about them sooner too. I did start getting in in 2005, for my mother's savings, and put $30K per year in for her until 2008. I was too dumb to start buying them for myself until 2008 when the $10K limit was imposed.
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Re: Gee, I coulda had an I-Bond instead!

Post by Easy Rhino »

But the SP 500 chart looks so much more fun!!
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Re: Gee, I coulda had an I-Bond instead!

Post by LH »

Browser wrote:I found this to be an eye-opening chart. Over the last 15 years, systematic investing in stocks has just managed to catch up with sytematic investing in I-Bonds instead. Who knew?
The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.
The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through May 1, 2013.
Image

http://www.savings-bond-advisor.com/i-b ... ck-market/
After actually having read the beardstown ladies, after having heard about them 10-100 times in the press, wsj even I think, and then year(s) or so later, read it was completely false, I wonder if the chart was done correctly, with dividends reinvested and such, etc.? Easy to blow something like this.
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

Browser wrote:
madbrain wrote:
Ice-9 wrote:It's not cherry-picking; it charts contributions ever since I-Bonds were first introduced.

See what happened last time the S&P surpassed I-bond return since 1998? Hmm, I hope this doesn't prove to be some sort of technical indicator. :shock: "The Dreaded Boglehead Cross!"
Yes, time to rebalance your stocks into I-bonds.

Oops, you can't do that due to the annual purchase limit on I-bonds.
Which the article quoted fails to mention. The limit makes the comparison much less relevant.
Individuals could purchase up to $30K annually until 2008, after that $10K. So, let's see: Had you purchased your limit, you could have invested $360K so far. The article, which was penned in May, 2013, stated that as of that date the value of your I-Bond portfolio would have been 44.9% more than the amount you invested. That would have been about $522K. I wonder if that's how much Mel has put in? Who needed stocks the last 15 years??? Rebalance????
Remember, it was $30,000 per SS#, so a couple could buy $60,000 per year, or even more if they had a trust. :happy
Best Regards - Mel | | Semper Fi
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Re: Gee, I coulda had an I-Bond instead!

Post by John3754 »

It's an interesting data snippet but completely meaningless since I can't get I bonds with fixed rates of 3+% like those that were issued back in the day. Anyone want to wager a guess as to how this chart will look 15 years from now with the current 0.0%-0.2% fixed rate bonds?
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

John3754 wrote:It's an interesting data snippet but completely meaningless since I can't get I bonds with fixed rates of 3+% like those that were issued back in the day. Anyone want to wager a guess as to how this chart will look 15 years from now with the current 0.0%-0.2% fixed rate bonds?
While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
Best Regards - Mel | | Semper Fi
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

Mel Lindauer wrote:
John3754 wrote:It's an interesting data snippet but completely meaningless since I can't get I bonds with fixed rates of 3+% like those that were issued back in the day. Anyone want to wager a guess as to how this chart will look 15 years from now with the current 0.0%-0.2% fixed rate bonds?
While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
:oops:

As to the question of how I-Bond returns will look 15 years from now -- it's all relative to how those stock returns will look. One thing is for sure - that cum return line for the I-Bonds won't have any of those roller coaster dips in it. 8-) Permanent Portfolio-ers -- eat your hearts out. :)
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Re: Gee, I coulda had an I-Bond instead!

Post by momar »

Yep, it's true that investing in stocks has risk. And that risk is a word with real meaning.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

Browser wrote:
Mel Lindauer wrote:
John3754 wrote:It's an interesting data snippet but completely meaningless since I can't get I bonds with fixed rates of 3+% like those that were issued back in the day. Anyone want to wager a guess as to how this chart will look 15 years from now with the current 0.0%-0.2% fixed rate bonds?
While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
:oops:

As to the question of how I-Bond returns will look 15 years from now -- it's all relative to how those stock returns will look. One thing is for sure - that cum return line for the I-Bonds won't have any of those roller coaster dips in it. 8-) Permanent Portfolio-ers -- eat your hearts out. :)
Yep, it's a one-way ride (up) with I Bonds. Enjoy the ride!
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Re: Gee, I coulda had an I-Bond instead!

Post by Sheepdog »

Mel Lindauer wrote:

While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
I bought my first I Bonds in June 2000 because Mel taught us at the M* Diehard forum with words something like this. "Back up the truck. Buy all you can.
A 3.6% (the fixed interest rate at the time) real return is almost as good as you can get in stocks over time. And it is safe." I am sure glad that I listened. I know many didn't. When I told my sons, one didn't believe me, but the other did and he bought some. Additionally, back then, you could buy the bonds using a credit card. Crazy!! I had a 2% rebate credit card at the time. I could buy $10,000 worth with the card on the last day of the month, get the full interest for the month, and get a $200 rebate from my CC company and do that several more times until I bought my $30K limit.....then I could do that for my spouse.
Think, those 6/2000 $500 bonds (the largest we could buy then on-line) have more than doubled in value and are now worth $1,129 and have 17 more years to grow. My kids will be happy when they inherit them, unless I live to 97, cash them in an spend it on something frivolous and sinful. :happy
Time is the school in which we learn, time is the fire in which we burn.~ Delmore Schwartz
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

Mel taught us at the M* Diehard forum with words something like this. "Back up the truck. Buy all you can.

I wish I'd gotten that memo. :( :(
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Re: Gee, I coulda had an I-Bond instead!

Post by z3r0c00l »

runner9 wrote:I wonder if this is "cherry picking" the date.
It is, to a dramatic extent. Starting near the end of the best bull market of all time... Let's see what stocks do in the next 10-20 years and then come back to this issue.
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Re: Gee, I coulda had an I-Bond instead!

Post by JoMoney »

I'm trying to figure out why/how their graph above is indicating the red line representing the Vanguard 500 as going up from 1999-2003? :annoyed Even with new deposits going in... shouldn't that time frame be going down?
In 1999, I coulda done just about anything instead :shock:
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Re: Gee, I coulda had an I-Bond instead!

Post by bondsr4me »

I have never, much to my dismany, never owned an I-bond....sure wish I was 100% invested in them since the mid-80's.
I do kinda believe what the chart tells us though.
In Stan and Hildy Richelson's book, "Bonds, The Unbeaten Path to Secure Investment Growth", they make an extremely good case for bonds.
Somewhere in their first book on bonds, I recall them saying that over the many decades, bonds have beaten stocks on performance.
They had mentioned "survivorship bias"; that had the Dow 30 data still include it's original companies, this index performance would not look as good as is commonly shown in the financial press; kinda like cherry-picking and keeping only the good data and discarding the bad data from the index's performance.
I have never been very good, poor to be honest to all of you, when it comes to picking stocks.
For me and my money, it's bonds-away! I know right now is an extremely rough time for bonds, but, in the long-run, I do feel the current stock market is headed for another correction. I am keeping duration very low until long-term rates are better.
Have a great day to all you Bogleheads...proud to be one too!
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Re: Gee, I coulda had an I-Bond instead!

Post by KMan »

JoMoney wrote:I'm trying to figure out why/how their graph above is indicating the red line representing the Vanguard 500 as going up from 1999-2003? :annoyed Even with new deposits going in... shouldn't that time frame be going down?
Just eye-balling the chart, it looks like they are using $1,000 investment per month, starting at $0 ... so in the early years, the gains/losses were dwarfed by the contributions.
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Re: Gee, I coulda had an I-Bond instead!

Post by JoMoney »

KMan wrote:
JoMoney wrote:I'm trying to figure out why/how their graph above is indicating the red line representing the Vanguard 500 as going up from 1999-2003? :annoyed Even with new deposits going in... shouldn't that time frame be going down?
Just eye-balling the chart, it looks like they are using $1,000 investment per month, starting at $0 ... so in the early years, the gains/losses were dwarfed by the contributions.
Ahh.. yes. Somehow I was missing the black line. :happy
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Re: Gee, I coulda had an I-Bond instead!

Post by Old Guy »

I bought $27,000 worth of I bonds back in 2001 with an investment that matured. I used my Marriott credit card and got 27,000 Marriott points. I was going to use them to pay part of my son's college expenses. Turned out I didn't need them for that purpose so I just saved them. The bonds are now worth $52,300.
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

The upper blue line is the total value of the Series I Savings Bond investment. Note that this line never goes down. This month it's 256.44 times the monthly investment. This is 44.9% more than the total amount invested.
I'm having trouble with this math. Looking at the chart, if the total amount invested is 150, and the ending value is 256.44, then the ending value would be 256.44/150, or about 71% more than the total amount invested. That would be an average annual return of 4.7%; whereas if 44.9% is correct that would represent an average annual return of about 3%. Which is correct?
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Re: Gee, I coulda had an I-Bond instead!

Post by HenryPorter »

In regards to some comments saying it is a negative since you can not rebalance into an I bond allocation due to dollar limits, I am wondering in general if I bonds were the superior bond investment vs. say a BND or other index type bond funds over the same time period? Do we have a chart that shows how buying other US debt instruments fared in comparison? I have a small allocation of I bonds I bought in 2003. That two years versus buying in 2001 made a difference in compounded growth:
Old Guy wrote:I bought $27,000 worth of I bonds back in 2001 with an investment that matured. I used my Marriott credit card and got 27,000 Marriott points. I was going to use them to pay part of my son's college expenses. Turned out I didn't need them for that purpose so I just saved them. The bonds are now worth $52,300.
I don't have the near 100% gain like Old Guy. No, in fact, my gains are about 50% based on the Savings Bind Wizard tally. The $875 face value in bonds bought in 2003 are about $1323 in value. Had I bought two years earlier, the bonds would be close to $1700 in value instead.
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

HenryPorter wrote:In regards to some comments saying it is a negative since you can not rebalance into an I bond allocation due to dollar limits, I am wondering in general if I bonds were the superior bond investment vs. say a BND or other index type bond funds over the same time period? Do we have a chart that shows how buying other US debt instruments fared in comparison? I have a small allocation of I bonds I bought in 2003. That two years versus buying in 2001 made a difference in compounded growth:
Old Guy wrote:I bought $27,000 worth of I bonds back in 2001 with an investment that matured. I used my Marriott credit card and got 27,000 Marriott points. I was going to use them to pay part of my son's college expenses. Turned out I didn't need them for that purpose so I just saved them. The bonds are now worth $52,300.
I don't have the near 100% gain like Old Guy. No, in fact, my gains are about 50% based on the Savings Bind Wizard tally. The $875 face value in bonds bought in 2003 are about $1323 in value. Had I bought two years earlier, the bonds would be close to $1700 in value instead.
You shouldn't compare a risk-free I Bond with BND or any other investment that's not risk-free. It's like comparing apples and cantaloupes (you probably did't expect that, now did you?).
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Re: Gee, I coulda had an I-Bond instead!

Post by Grt2bOutdoors »

Old Guy wrote:I bought $27,000 worth of I bonds back in 2001 with an investment that matured. I used my Marriott credit card and got 27,000 Marriott points. I was going to use them to pay part of my son's college expenses. Turned out I didn't need them for that purpose so I just saved them. The bonds are now worth $52,300.
Yup, I wasn't on the forums back in 1998-2001, but with yields as juicy as I bonds were offering, I couldn't pass it up. My holding from that era have more than doubled, later purchases - not as much, but still much better than anything you can find out there today with equal duration.
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

Sheepdog wrote:
Mel Lindauer wrote:

While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
I bought my first I Bonds in June 2000 because Mel taught us at the M* Diehard forum with words something like this. "Back up the truck. Buy all you can.
A 3.6% (the fixed interest rate at the time) real return is almost as good as you can get in stocks over time. And it is safe." I am sure glad that I listened. I know many didn't. When I told my sons, one didn't believe me, but the other did and he bought some. Additionally, back then, you could buy the bonds using a credit card. Crazy!! I had a 2% rebate credit card at the time. I could buy $10,000 worth with the card on the last day of the month, get the full interest for the month, and get a $200 rebate from my CC company and do that several more times until I bought my $30K limit.....then I could do that for my spouse.
Think, those 6/2000 $500 bonds (the largest we could buy then on-line) have more than doubled in value and are now worth $1,129 and have 17 more years to grow. My kids will be happy when they inherit them, unless I live to 97, cash them in an spend it on something frivolous and sinful. :happy
And if the chart included the 2% cash back that many of us got when we purchased the I Bonds with our credit cards, plus the full month's interest we got for only owning the bonds for one day, plus the interest we earned on the cc float of up to perhaps 55 days, the I Bond return would actually be even higher than indicated. Those were certainly "the good old days".
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Re: Gee, I coulda had an I-Bond instead!

Post by HenryPorter »

Mel Lindauer wrote:You shouldn't compare a risk-free I Bond with BND or any other investment that's not risk-free. It's like comparing apples and cantaloupes (you probably did't expect that, now did you?).
I purposely omitted bringing up things like NAV and market price vs. plain vanilla compounded growth that outright I-bond ownership entail. I think us being in the tail end of a bond bull market can not be ignored, of course. Going forward, bond funds will be, uh, maybe OK? I'd be interested in seeing how most bond types investments and investing regimens did compared to index funds in the same 15 year time period. Some days I think the supposed safety of bonds is a no-brainer and then other days I realize that bonds are like the community colleges of investments. You get up your credits to transfer to a 4 year college.
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

HenryPorter wrote:
Mel Lindauer wrote:You shouldn't compare a risk-free I Bond with BND or any other investment that's not risk-free. It's like comparing apples and cantaloupes (you probably did't expect that, now did you?).
I purposely omitted bringing up things like NAV and market price vs. plain vanilla compounded growth that outright I-bond ownership entail. I think us being in the tail end of a bond bull market can not be ignored, of course. Going forward, bond funds will be, uh, maybe OK? I'd be interested in seeing how most bond types investments and investing regimens did compared to index funds in the same 15 year time period. Some days I think the supposed safety of bonds is a no-brainer and then other days I realize that bonds are like the community colleges of investments. You get up your credits to transfer to a 4 year college.
Something like BND or Total Bond should certainly be part of any long-term investor's portfolio. Bonds represent the portfolio's "ballast" and help investors weather the storms that occur in the equity side.
Best Regards - Mel | | Semper Fi
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Re: Gee, I coulda had an I-Bond instead!

Post by BackInTheBlack »

A couple of years ago I had found out that my parents had cashed in something like $30k in iBonds... to buy a car! I was hurting for them lol. Fortunately, I was able to convince them NOT to cash in the other ones and just sit tight (many were bought in '01, so had very good rates). You simply cannot beat a guaranteed 3% real rate of return, period.
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Re: Gee, I coulda had an I-Bond instead!

Post by #Cruncher »

The Savings Bond Advisor chart combines the results of an equal investment made every month since September 1998. I thought it would be interesting to break this down and show separately the results of an investment made each year.
Image
The chart plots the "Annual Rate" from the following table:

Code: Select all

     I Bond     Annual Rate         Total Growth      VG 500
      Fixed   ---------------     ----------------    Yearly
Year   Rate   I Bond   VG 500     I Bond    VG 500    Change
----  -----   ------   ------     ------    ------    ------
1999   3.3%     6.0%     2.8%     2.2652    1.4814    21.07% 
2000   3.4%     6.2%     1.6%     2.1792    1.2236    (9.06%)
2001   3.4%     6.1%     2.5%     2.0320    1.3454   (12.02%)
2002   2.0%     4.7%     3.9%     1.6500    1.5293   (22.15%)
2003   1.6%     4.4%     7.0%     1.5348    1.9644    28.50% 
2004   1.1%     3.9%     4.8%     1.4060    1.5287    10.74% 
2005   1.0%     3.9%     4.1%     1.3572    1.3804     4.77%

Code: Select all

2006   1.0%     3.8%     4.0%     1.3024    1.3176    15.64% 
2007   1.4%     4.1%     2.2%     1.2760    1.1394     5.39% 
2008   1.2%     3.9%     1.6%     1.2128    1.0811   (37.02%)
2009   0.7%     3.2%    14.5%     1.1324    1.7166    26.49% 
2010   0.3%     2.8%    10.7%     1.0876    1.3571    14.91% 
2011   0.0%     2.7%     8.7%     1.0540    1.1810     1.97% 
2012   0.0%     2.6%    15.8%     1.0264    1.1582    15.82%
An I Bond bought Jan 1999 would have grown to 2.2652 times its value 14 years later on Jan 1 2013 (see $100 I Bond with 3.30% Fixed Rate Purchased January 1999), an annual increase of 6.0%. By comparison money put into Vanguard 500 Index Fund Investor Shares (VFINX) on Jan 1 1999 would have grown, with dividends reinvested, to only 1.4814 times its value on Jan 1 2013, an annual increase of just 2.8%.

Likewise I Bonds bought Jan 2000 or Jan 2001 would have grown to much more on Jan 1 2013 than an equal amount invested in the VG 500 fund. However, by January 2003 the I Bond fixed rate had fallen to 1.6% and the stock market was coming off a bottom. So money put in the Vanguard fund at that time would have grown a lot more over the next 10 years than an I Bond purchased the same month.
LH wrote:... I wonder if the chart was done correctly, with dividends reinvested and such, etc.?.
I confirmed the 256.44 ending value for the I Bonds. Using my I Bond Portfolio Calculator I slotted in 177 $100 purchases every month from Sep 1998 thru May 2013. The total value of all 177 I Bonds on 5/1/2013 was $25,674.92, pretty close to $25,644.

Since I don't have monthly returns for the Vanguard 500 fund, I couldn't confirm its 270.26 ending value. But the figures I used for my chart above tend to confirm that it's correct. $1 invested in I Bonds each January for the 14 years from 1999 thru 2012 would have grown to $20.52 on Jan 1 2013 (the sum of the figures in the "Total Growth" column). $1 invested each Jan 1st for the same 14 years into the Vanguard fund would have grown to $19.40. It seems reasonable that, if the comparison continued another 4 months to May 1 2013, the Vanguard fund would probably overtake the I Bonds.
Browser wrote:Looking at the chart, if the total amount invested is 150, and the ending value is 256.44, ...
It's not 150. Don't try to eyeball the chart; just read the paragraph above the one you quoted:
Savings Bond Advisor wrote:The thin, black line shows how much money has been invested. It goes up very steadily because an equal amount of money is added each month. This month, it's at 177.
177 is the number of months from September 1998 thru May 2013. The return is then about 0.4% per month. (The future value of an annuity of $1 @ 0.4% for 177 periods is about $256.)
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Re: Gee, I coulda had an I-Bond instead!

Post by manwithnoname »

Sheepdog wrote:
Mel Lindauer wrote:

While YOU can't get those high rates now, remember that those investors who loaded up back then will continue getting those juicy returns until their bonds hit the 30-year mark.
I bought my first I Bonds in June 2000 because Mel taught us at the M* Diehard forum with words something like this. "Back up the truck. Buy all you can.
A 3.6% (the fixed interest rate at the time) real return is almost as good as you can get in stocks over time. And it is safe." I am sure glad that I listened. I know many didn't. When I told my sons, one didn't believe me, but the other did and he bought some. Additionally, back then, you could buy the bonds using a credit card. Crazy!! I had a 2% rebate credit card at the time. I could buy $10,000 worth with the card on the last day of the month, get the full interest for the month, and get a $200 rebate from my CC company and do that several more times until I bought my $30K limit.....then I could do that for my spouse.
Think, those 6/2000 $500 bonds (the largest we could buy then on-line) have more than doubled in value and are now worth $1,129 and have 17 more years to grow. My kids will be happy when they inherit them, unless I live to 97, cash them in an spend it on something frivolous and sinful. :happy
So.
Average gain on I bonds is about 6.2% over 13.45 years which is less than the 8% annual gain on VZ stock for the last 30 years plus 4.23% dividend which is taxed at 0%. VZ will passed on to heirs with stepped up basis for 0 capital gain.
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Browser
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Re: Gee, I coulda had an I-Bond instead!

Post by Browser »

Thank you #Cruncher. Quite informative analysis. Yep, I was thinking about equal annual investments over 15 years; ergo, the 150. I forgot this was about equal monthly investments over the period = 177. That math works better. :thumbsup
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Re: Gee, I coulda had an I-Bond instead!

Post by MooreBonds »

Sheepdog wrote: Additionally, back then, you could buy the bonds using a credit card. Crazy!! I had a 2% rebate credit card at the time. I could buy $10,000 worth with the card on the last day of the month, get the full interest for the month, and get a $200 rebate from my CC company and do that several more times until I bought my $30K limit.....then I could do that for my spouse.
Think, those 6/2000 $500 bonds (the largest we could buy then on-line) have more than doubled in value and are now worth $1,129 and have 17 more years to grow. My kids will be happy when they inherit them, unless I live to 97, cash them in an spend it on something frivolous and sinful. :happy
Yes, I remember those times. I had cashed in some EE bonds issued in 1981/82/83 from my grandfather, and recycled those into I-bonds. Was a big PIA having to buy them only $500 at a time on-line - but loaded up my airline credit card to accumulate massive points for a free ticket. :) And have a killer fixed rate for another 17 years (3.3% fixed average)
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nedsaid
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Re: Gee, I coulda had an I-Bond instead!

Post by nedsaid »

I am buying I-Bonds now. I think they are the best of bad choices for fixed income investors. Right now you get a fixed rate of 0.20% plus inflation. My bank pays less than 0.20% and I get no inflation protection.

Too bad I didn't back up the truck when I-Bonds yielded 3% fixed return plus inflation. Oh well. But I still own EE Bonds that have a guaranteed 4% return.
A fool and his money are good for business.
Reubin
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Re: Gee, I coulda had an I-Bond instead!

Post by Reubin »

Remember, although the individual limit for purchasing I bonds is $10,000 per year, you can purchase $5000 more through your income tax refund.

http://www.forbes.com/sites/theboglehea ... r-i-bonds/

Hey! That author sure looks familiar! :happy
wastenot
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Re: Gee, I coulda had an I-Bond instead!

Post by wastenot »

As an alternative, in order to get $5,000 extra in I-bonds, could I cash in a traditional IRA before Dec. 31 of this year and ask Vanguard to send to the IRS a withholding that will cover the $5,000 I-bond?

In this way would I receive this extra amount in I-Bonds when I pay my 2013 taxes in early 2014, and also be able to buy the standard $10,000 I-Bond limit in 2014?

Any comments would be appreciated.
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Mel Lindauer
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

wastenot wrote:As an alternative, in order to get $5,000 extra in I-bonds, could I cash in a traditional IRA before Dec. 31 of this year and ask Vanguard to send to the IRS a withholding that will cover the $5,000 I-bond?

In this way would I receive this extra amount in I-Bonds when I pay my 2013 taxes in early 2014, and also be able to buy the standard $10,000 I-Bond limit in 2014?

Any comments would be appreciated.
That's another way to overpay your taxes (have Vanguard withhold 100% of a $5000 withdrawal, or alternately, withhold $5000 more than normal on a larger withdrawal). Hopefully this is a RMD, since I wouldn't ordinarily recommend taking unneeded withdrawals from one's IRA just to buy I Bonds.

And yes, you would be able to buy another 10k in 2014.
Best Regards - Mel | | Semper Fi
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Epsilon Delta
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Re: Gee, I coulda had an I-Bond instead!

Post by Epsilon Delta »

Mel Lindauer wrote:
That's another way to overpay your taxes (have Vanguard withhold 100% of a $5000 withdrawal, or alternately, withhold $5000 more than normal on a larger withdrawal). Hopefully this is a RMD, since I wouldn't ordinarily recommend taking unneeded withdrawals from one's IRA just to buy I Bonds.
The withholding is rollover eligible, you can complete the rollover by depositing money from your taxable account. If you do this you have to be careful of the once a year limit for rollovers from a particular account. It helps to have two distinct IRA accounts to use in alternate years.
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Re: Gee, I coulda had an I-Bond instead!

Post by gkaplan »

Could I overpay my fourth quarter estimated tax so I could have a refund due and take in in I-Bonds? If so, are they paper I-Bonds?
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Re: Gee, I coulda had an I-Bond instead!

Post by Mel Lindauer »

gkaplan wrote:Could I overpay my fourth quarter estimated tax so I could have a refund due and take in in I-Bonds? If so, are they paper I-Bonds?
Yep.
Best Regards - Mel | | Semper Fi
wastenot
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Re: Gee, I coulda had an I-Bond instead!

Post by wastenot »

Mel Lindauer wrote:
That's another way to overpay your taxes (have Vanguard withhold 100% of a $5000 withdrawal, or alternately, withhold $5000 more than normal on a larger withdrawal). Hopefully this is a RMD, since I wouldn't ordinarily recommend taking unneeded withdrawals from one's IRA just to buy I Bonds.

And yes, you would be able to buy another 10k in 2014.
Many thanks, Mel, for your prompt answer. You, along with so many other Boglehead contributors, are true friends of humanity.

And the I-Bond vs. traditional IRA debate (especially involving TIPS funds, as in my case) raises another question which will be asked in a separate thread. Thanks again!
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Re: Gee, I coulda had an I-Bond instead!

Post by gkaplan »

Mel Lindauer wrote:
gkaplan wrote:Could I overpay my fourth quarter estimated tax so I could have a refund due and take in in I-Bonds? If so, are they paper I-Bonds?
Yep.
Thanks for your quick response, Mel. (I take it your "Yep" response refers to both my questions.)
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Re: Gee, I coulda had an I-Bond instead!

Post by sscritic »

Yep, that's yep yep.
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Kevin M
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Re: Gee, I coulda had an I-Bond instead!

Post by Kevin M »

And don't forget using a living trust to get another $10K per year. You could set up your own trust fairly quickly using the Nolo Press book, then open an entity account at TD in about 10 minutes. Getting an extra $10K for my trust is much easier than getting an extra $5K by overpaying my taxes and filling out the extra from to get the refund in I bonds. Of course if you're willing to do the latter, you up your annual limit to $25K--not too much less than the old $30K limit!

Kevin
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