Treating I-Bonds as Long-term Bond Holdings

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aj76er
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Treating I-Bonds as Long-term Bond Holdings

Post by aj76er »

Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Noobvestor »

I don't know if they'd be the 'last' bonds I would sell. Part of their value is the flexibility of cashing them in. For instance, I might cash some in during a lower-tax phase of life (e.g. after retirement but before SS). The rest I largely agree with, though.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Sheepdog »

I felt the same way on all of your points when I purchased mine in the early 2000s, a couple of years following retirement.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Call_Me_Op »

They do not behave like long-term bonds, but nobody can stop you from treating them as same. The EE Bond is more like a long-term nominal bond if held for 20 years.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by truenorth418 »

I also treat my iBond holdings as the major part of my bond allocation. I agree with your points. I would also add that iBonds cannot lose value when interest rates rise, so this provides solace in a rising rate environment.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by nisiprius »

To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."

*There might be some weird corner cases and special situations under which these statements are not true, but... they're close to true. And of course any taxable investment with a very low before-tax real return will have negative real return after taxes which are assessed on nominal dollar increase, not real value increase.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by dbr »

aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

"Treating . . . as" is reasoning fraught with confusion.


1. LT bonds with 20-30 yr maturity

Savings bonds and LT bonds are about as opposite as you can get. I would say this makes no sense.


2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k

Agreed. This is one value in holding I bonds.


3. Zero duration, which lowers the overall duration of my combined bond holdings

This makes sense. More accurately I bonds have no interest rate risk in real dollars. They do have risk in nominal dollars in the sense that the value of the bond in nominal dollars is uncertain depending on future inflation.

4. No credit risk, which decreases the overall credit risk of my combined bond holdings

Yes


5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

Yes, more or less. I would be careful about the difference between an asset that has no inflation risk and an asset, if there is one, that offsets the inflation risk of other assets. But I think what you mean by this is correct.

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.

I agree one does not want to deplete this asset prematurely because it is an asset limited in availability, but as others are saying, it might be useful at any time.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by friar1610 »

I treat my I-Bonds as bonds but don't get too hung up on whether they're long-term or not. They'll just sit there until they're needed or max out at 30 years. I certainly value their flexibility in that I can redeem them virtually any time I want to. I'm fortunate to have some from the good old 3.4% fixed rate days and I've left very specific guidance for my wife that if she needs to redeem I-Bonds after I'm gone she should start with the lower interest ones and let the 3.4's accrue interest until the last possible minute.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Angst »

To me, they're "Bonds" in name only. As Nisi said above, they're unique. The closest thing that I'd try to say they are like is a passbook savings account that is inflation protected, with both a 1-year lockout (no sell) on new contributions and a 3-month interest rate penalty for any withdrawals prior to year 5. They're nothing like long-term bonds, or even "bonds" for that matter.

Now EE Bonds... those critters are pretty peculiar as well, but they're a lot more like LT bonds. Actually, one might describe them as non-negotiable 20-year zero coupon treasury bonds. (Anyone at all who buys them ought to be planning on holding them to maturity; the minuscule interest rate is irrelevant.) Earning an effective rate of 3.53% to maturity, I think they've been a fairly good buy for the last six or seven years, given where interest rates have been and generally seem to continue to be. Of course time will tell. Everyone "knows" rates are going up, sometime soon... :wink:
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Mel Lindauer »

aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.

Regards,

Mel
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by beardsworth »

nisiprius wrote:To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.
Mel Lindauer wrote:
aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.
Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Mel Lindauer »

beardsworth wrote:
nisiprius wrote:To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.
Mel Lindauer wrote:
aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.
Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by ImmigrantSaver »

Mel Lindauer wrote:
beardsworth wrote:
nisiprius wrote:To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.
Mel Lindauer wrote:
aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.
Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
Just curious. What did you consider to be enough of i bonds, as a percentage of your overall allocation? I just started purchasing them last year at 33 and planning to max it out for the next several years but struggling to decide of overall allocation if I-bonds in my total portfolio.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Mel Lindauer »

ImmigrantSaver wrote:
Mel Lindauer wrote:
beardsworth wrote:
nisiprius wrote:To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.
Mel Lindauer wrote:
aj76er wrote:Most of the discussion I see around I-bonds treat them as cash equivalents and/or emergency funds.

I've been treating my I-bonds as long-term holdings with the following qualities:

1. LT bonds with 20-30 yr maturity
2. Extension of tax-deferred space, allowing me to hold fewer nominal bonds in my 401k
3. Zero duration, which lowers the overall duration of my combined bond holdings
4. No credit risk, which decreases the overall credit risk of my combined bond holdings
5. Inflation indexed interest payments (compounded), which increases the overall inflation protection of my portfolio

For me, these are the "last" bonds I'd sell (prior to maturity) because items #2-#5 seem so powerful.
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.
Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
Just curious. What did you consider to be enough of i bonds, as a percentage of your overall allocation? I just started purchasing them last year at 33 and planning to max it out for the next several years but struggling to decide of overall allocation if I-bonds in my total portfolio.
As Jack Bogle said in the title of one of his books "Enough".

One thing you'll need to keep in mind is that you'll be 63 and beyond when currently-purchased I Bonds mature. So, if you don't use them for an emergency or take advantage of the tax-free use for your or your children's qualifying educational expenses, you'll likely be in the prime earning years of your life and thus in a high tax bracket. That is, unless you plan to retire early, in which case your laddered bond redemptions could allow you to put off collecting SS until age 70, thus maximizing your SS payments for life.
Best Regards - Mel | | Semper Fi
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Phineas J. Whoopee »

The designation of a bond as long- intermediate- or short-term has to do with the bond, not the investor. One could, for example, hold Vanguard's Short-Term Bond Index Fund, VBISX, for decades, but its average duration would still be between two and three years.

I agree, of course because it's simply a list of facts, that US Savings Bonds have different characteristics than other securities available to US investors. I think of them as more cash-like in terms of fluctuations in nominal value, and more bond-like in terms of likely returns vs. cash.

The instruments are what they are, and behave the way they behave. They don't care what we call them.

I personally, in my asset allocation, call my savings bonds fixed income. They're part of my fixed income allocation. They contribute to moderating the effect of my US and international total stock market index funds. That's good enough for me.

But it doesn't change their nature.

PJW
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by ImmigrantSaver »

Mel Lindauer wrote:
ImmigrantSaver wrote:
Mel Lindauer wrote:
beardsworth wrote:
nisiprius wrote:To me the coolest thing about I-bonds is that (after the first year is up) I can treat them as having any term I like, any maturity I like. The final 30-year maturity is just a nuisance. The big thing about I-bonds that offsets the low rates is the absence of interest rate risk. In between purchase and maturity, the real value of a TIPS is a fluctuating market value, and thus unknown. It only becomes risk-free at the specific future date when it matures. But the value of a series I savings bond does not fluctuate. The real value only goes up, month by month. The absolute dollar value only goes up, month by month.* That is utterly different from "normal" bonds.

They are definitely not like long-term bonds, which in fact have high interest rate risk and fluctuate a lot.

People sometimes claim that e.g. junk bonds are a unique asset class. Well, I-bonds are truly unique.

For years I kept a spreadsheet in which I put all the "puzzling" investments into categories of their own--investments that weren't obviously "stocks," "bonds," or "cash"--and then had cells and columns that grouped them and struck totals. To this day I'm not sure whether I bonds should go under "cash" or "bonds." In terms of low return, general "safety," and "never-goes-downiness" they are more like cash. But it doesn't really matter because as far as I'm concerned, the only percentage that really matters is "stocks" versus "not-stocks."
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.
Mel Lindauer wrote:
Several other benefits of I Bonds that weren't mentioned include:
1. Can be used tax-free for qualifying educational expenses.
2. Offer not only inflation protection, but also DEflation protection. Since they can never lose value, the greater the rate of DEflation, the higher the REAL return will be on your I Bonds.
3. They're free from state and local taxation.
Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
Just curious. What did you consider to be enough of i bonds, as a percentage of your overall allocation? I just started purchasing them last year at 33 and planning to max it out for the next several years but struggling to decide of overall allocation if I-bonds in my total portfolio.
As Jack Bogle said in the title of one of his books "Enough".

One thing you'll need to keep in mind is that you'll be 63 and beyond when currently-purchased I Bonds mature. So, if you don't use them for an emergency or take advantage of the tax-free use for your or your children's qualifying educational expenses, you'll likely be in the prime earning years of your life and thus in a high tax bracket. That is, unless you plan to retire early, in which case your laddered bond redemptions could allow you to put off collecting SS until age 70, thus maximizing your SS payments for life.
I thought about that scenario but I don't think I'll be in prime earning years at 63 and beyond. As a female in finance I expect to be pushed out by that age. (Just an observation I made over these years looking at what happened to most senior women I met). So I will most likely be doing something part time or even in different industry. I consider right now to be my prime earning/saving years :)
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Mel Lindauer »

ImmigrantSaver wrote:
Mel Lindauer wrote:
ImmigrantSaver wrote:
Mel Lindauer wrote:
beardsworth wrote:
That's exactly my view. After the first year, an I-Bond is as liquid as cash, but it can also be viewed, and used, as an inflation-indexed 30-year Treasury bond, but one which has no market-fluctuating share price and whose value never declines from its current accrual-since-issue.



Mel, on quite a few occasions you've expressed your own gratitude that you were able to stock up on I-Bonds when they were still in paper form (I'm excluding the ongoing loophole to receive a small amount of federal tax refund as paper bonds), and corresponding misgivings about Treasury Direct's unwillingness to accept any liability for customer account losses, even losses (e.g., hacking) not attributable to, or enabled by, any action of the customer.

So . . . since electronic Treasury Direct is pretty much the only game in town, would you still recommend that people keep buying I-Bonds anyway, even though they must be in non-paper form? I've been doing it, but when I see occasional news reports of security lapses at major government and corporate systems, it doesn't exactly contribute to calm. Paper bonds were replaceable.
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
Just curious. What did you consider to be enough of i bonds, as a percentage of your overall allocation? I just started purchasing them last year at 33 and planning to max it out for the next several years but struggling to decide of overall allocation if I-bonds in my total portfolio.
As Jack Bogle said in the title of one of his books "Enough".

One thing you'll need to keep in mind is that you'll be 63 and beyond when currently-purchased I Bonds mature. So, if you don't use them for an emergency or take advantage of the tax-free use for your or your children's qualifying educational expenses, you'll likely be in the prime earning years of your life and thus in a high tax bracket. That is, unless you plan to retire early, in which case your laddered bond redemptions could allow you to put off collecting SS until age 70, thus maximizing your SS payments for life.
I thought about that scenario but I don't think I'll be in prime earning years at 63 and beyond. As a female in finance I expect to be pushed out by that age. (Just an observation I made over these years looking at what happened to most senior women I met). So I will most likely be doing something part time or even in different industry. I consider right now to be my prime earning/saving years :)
Given the scenario that you expect to happen, the I Bonds would come in handy to help bridge the gap from early retirement to max SS at age 70. Here's another Savings Bond idea from a Forbes column I did a while back that might also help bridge the early retirement gap (if you've got the extra money to flesh it out).

https://www.forbes.com/sites/theboglehe ... 8400957ba3
Best Regards - Mel | | Semper Fi
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by ImmigrantSaver »

Mel Lindauer wrote:
ImmigrantSaver wrote:
Mel Lindauer wrote:
ImmigrantSaver wrote:
Mel Lindauer wrote:
That's a personal decision each investor must make. Personally, I decided to no longer purchase Savings Bonds because I tried and didn't care for the TD experience. Lots of folks think it's fine, and that's OK with me.

I got my fair share of paper bonds while the getting was good, so I don't feel the need to add to my collection. But if I did, I don't think I could overcome my serious misgivings about some TD accounts getting hacked and those who got hacked losing everything in their account with no recourse.

Again, as I said, it's a personal choice each investor has to make.
Just curious. What did you consider to be enough of i bonds, as a percentage of your overall allocation? I just started purchasing them last year at 33 and planning to max it out for the next several years but struggling to decide of overall allocation if I-bonds in my total portfolio.
As Jack Bogle said in the title of one of his books "Enough".

One thing you'll need to keep in mind is that you'll be 63 and beyond when currently-purchased I Bonds mature. So, if you don't use them for an emergency or take advantage of the tax-free use for your or your children's qualifying educational expenses, you'll likely be in the prime earning years of your life and thus in a high tax bracket. That is, unless you plan to retire early, in which case your laddered bond redemptions could allow you to put off collecting SS until age 70, thus maximizing your SS payments for life.
I thought about that scenario but I don't think I'll be in prime earning years at 63 and beyond. As a female in finance I expect to be pushed out by that age. (Just an observation I made over these years looking at what happened to most senior women I met). So I will most likely be doing something part time or even in different industry. I consider right now to be my prime earning/saving years :)
Given the scenario that you expect to happen, the I Bonds would come in handy to help bridge the gap from early retirement to max SS at age 70. Here's another Savings Bond idea from a Forbes column I did a while back that might also help bridge the early retirement gap (if you've got the extra money to flesh it out).

https://www.forbes.com/sites/theboglehe ... 8400957ba3
Thanks for the link! I still need to educate myself on the EE binds and their potential use in my portfolio!
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by market timer »

What does it mean to "treat" I bonds as LT bond holdings?

I bonds are different from most bonds in that they cannot be traded. This means the value to the holder is not simply the market value or today's redemption value. We've had several discussions on this topic over the years that might be worth searching. My opinion is that for net worth tracking purposes one should estimate the value of I bonds or EE bonds based on the prevailing yields of traded government bonds. If you do this, you'll see clearly that I bonds and EE bonds can have high duration. Moreover, it will be clear that I bonds and EE bonds should generally be the last bonds to sell/redeem, since their implied value is significantly above redemption value. Early redemption means losing this implicit premium.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by aj76er »

market timer wrote:My opinion is that for net worth tracking purposes one should estimate the value of I bonds or EE bonds based on the prevailing yields of traded government bonds. If you do this, you'll see clearly that I bonds and EE bonds can have high duration. Moreover, it will be clear that I bonds and EE bonds should generally be the last bonds to sell/redeem, since their implied value is significantly above redemption value. Early redemption means losing this implicit premium.
Thank you, market timer. I believe this is what I was sensing about these bonds; but I could not explain or articulate as well as you did.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by assetalloc »

It seems very few talk about "long term" returns of I Saving Bonds.

https://www.treasurydirect.gov/indiv/re ... dterms.htm

I did a quick math from 11/1/1998 - 10/31/2018 - Ibonds returned 3.2% annual return - and its Tax free!! VBMFX (vanguard total bond fund) had a return of 4.41% for same period.

Ibonds make a great choice for taxable accounts.

Is it fair to assume, that inflation played some role in Ibonds where as Total Bond fund may not. How do I compare VBMFX with Ibonds?
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Mel Lindauer »

assetalloc wrote: Tue Nov 13, 2018 7:49 pm It seems very few talk about "long term" returns of I Saving Bonds.

https://www.treasurydirect.gov/indiv/re ... dterms.htm

I did a quick math from 11/1/1998 - 10/31/2018 - Ibonds returned 3.2% annual return - and its Tax free!! VBMFX (vanguard total bond fund) had a return of 4.41% for same period.

Ibonds make a great choice for taxable accounts.

Is it fair to assume, that inflation played some role in Ibonds where as Total Bond fund may not. How do I compare VBMFX with Ibonds?
I Bonds are tax-DEFERRED for up to 30 years, but they're not tax-FREE at the Frderal level unless used for qualifying educational expenses. However, they are free from state and local taxes.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Old Guy »

I bought $27,000 in I bonds in 2001 when my son was going off to college. Didn’t need the money for that. I have 19 left worth $45,500. They have done very nicely. Originally bought them with my Marriott credit card and got 27,000 reward points.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by CULater »

Another advantage of I-Bonds (compared to TIPS) is that they are like zero-coupon bonds. You don't have to worry about what to do with the interest that is being thrown off while you hold them, as you do with TIPS. Also, TIPS should be held in a tax-deferred account or Roth IRA. If they are in a tIRA and you have reached the age to take required minimum distributions, then you either have to keep some of your money in a liquid asset or do partial redemptions of the TIPS to fund the RMDs. I found the handling of the interest payments and the RMDs to be a pain. Much prefer I-Bonds to holding TIPS in a tIRA.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by z3r0c00l »

I have more than one use for them and so buy the maximum every year. They are a very attractive long term bond, something I would likely spend down 20 - 30 years from now before 401K and SS start but after retirement and pension are started. Current I bonds tell you exactly what they will do this year, next year, and over 30 years; preserve the purchasing power of your investment, no more, no less. Hard to find anything else that has that kind of guarantee. It is also my long-term emergency fund. And on top of it all, my oldest I bonds, which have the worst fixed rate, will be ready for a down payment on a home in a few years. Living in NYC, they are even more attractive.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by bligh »

There is no question I love my I-Bonds. With the 0.5% fixed rate they are even better and I look forward to buying more in Jan.

I wonder what the changes are of a 0.7 or higher fixed rate in March or November of next year. Perhaps it makes sense for me to wait till March to see what the new rate is going to be before buying in?
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by gclancer »

bligh wrote: Thu Nov 15, 2018 11:24 am Perhaps it makes sense for me to wait till March to see what the new rate is going to be before buying in?
I would say it always makes sense to wait, assuming you’re holding I Bonds long term, the information advantage of waiting far outweighs the lost return for the two months interest you end up losing (for that matter, if you decide to wait until after the rate change to buy, I’d wait until November to gain the additional information advantage that comes then - you can have the money sitting in a money market fund offsetting some of the foregone return in the interim).
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by CULater »

But I agree with Mel. The biggest drawback to I-Bonds is having to hold them in Treasury Direct. Not only is it a hassle, but I'm trying to simplify my finances as I grow older, and I'm concerned about my ability to manage TD investments and also my heirs having to deal with TD when I pass. Kinda gums up my simplification plans.
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Phineas J. Whoopee »

CULater wrote: Thu Nov 15, 2018 11:57 am But I agree with Mel. The biggest drawback to I-Bonds is having to hold them in Treasury Direct. Not only is it a hassle, but I'm trying to simplify my finances as I grow older, and I'm concerned about my ability to manage TD investments and also my heirs having to deal with TD when I pass. Kinda gums up my simplification plans.
I believe your heirs, particularly your executor, will only need the knowledge you own electronic savings bonds, your social security number, and a copy of your death certificate to send to the Bureau of Fiscal Service (it took me one minute to look that up just now). They don't have to deal with Treasury Direct.

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Re: Treating I-Bonds as Long-term Bond Holdings

Post by Sportswhiz00 »

bligh wrote: Thu Nov 15, 2018 11:24 am There is no question I love my I-Bonds. With the 0.5% fixed rate they are even better and I look forward to buying more in Jan.

I wonder what the changes are of a 0.7 or higher fixed rate in March or November of next year. Perhaps it makes sense for me to wait till March to see what the new rate is going to be before buying in?
I plan on waiting until next November to buy for 2019. Right now the composite rate is basically the same as the rate for short term treasuries, and so there is essentially no advantage to picking I bonds giving that the fixed rate could increase and you would get to benefit from that increase for 30 years. The only downside of waiting is that the one year holding period won’t have started but that is irrelevant to me (and I suspect most people on this forum who use i bonds as a medium to long term investment).
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Re: Treating I-Bonds as Long-term Bond Holdings

Post by bligh »

Sportswhiz00 wrote: Fri Nov 16, 2018 6:55 am
bligh wrote: Thu Nov 15, 2018 11:24 am There is no question I love my I-Bonds. With the 0.5% fixed rate they are even better and I look forward to buying more in Jan.

I wonder what the changes are of a 0.7 or higher fixed rate in March or November of next year. Perhaps it makes sense for me to wait till March to see what the new rate is going to be before buying in?
I plan on waiting until next November to buy for 2019. Right now the composite rate is basically the same as the rate for short term treasuries, and so there is essentially no advantage to picking I bonds giving that the fixed rate could increase and you would get to benefit from that increase for 30 years. The only downside of waiting is that the one year holding period won’t have started but that is irrelevant to me (and I suspect most people on this forum who use i bonds as a medium to long term investment).
Well there is one possible downside if the fixed rate drops...
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