#Cruncher's excellent graph depicts what's going on here so well that I have to replicate it.Noobvestor wrote: ↑Sun Nov 19, 2017 5:08 pmI was thinking about this again and I'm revising my answer from four years ago: on my spreadsheets, I have started adding 5% each year (over initial value). For instance, a $10,000 EE bond bought 5 years ago would be marked $1,250 on the spreadsheet.
Why? Because these are the last things I would sell before they double, so short of a huge rate spike in bonds (which requires different math) I figure I should treat them in terms of how far they are to their doubling value and assume they will be held until that value is achieved.
For the purposes of portfolio construction, this has a significant impact on what my total bond allocation is. Basically, instead of the EE bond arcing slowly upward over time, it tracks a linear progression. If it followed a curve, my bond portion would be lower early on. Thoughts/opinions?
If you wish to base the value of your EE bonds on their current (i.e. today's) value, then you should ignore the 'spike' at the end until it comes to fruition. If you wish to base the value of your EE bonds on their final value, then you should value them based on an 3.53% annual interest rate.
There is really no middle ground here, though I'm sure an accountant (I don't think any have posted on this) might find a way to create some.
Personally, considering that EE bonds are the most illiquid bonds I've ever seen and cannot be used for rebalancing purposes or redeemed prior to the 20 year holding period for anything short of emergencies on the order of bankruptcy, I'm not interested in them in the slightest. They have huge interest rate risk as well. Historically, if you know you aren't going to need the money you're putting in EE bonds before 20 years, then you should have put them into equities. There have only been about three periods where stocks would not have returned 3.53% annually over 20 years, so the historic 'odds' are over 95% in favor of stocks. And they don't have the illiquidity issues nor interest rate risk of EE bonds.