The I Bond Manifesto

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The I Bond Manifesto

Post by Mel Lindauer »

I was pleased to be included in the crafting of this I Bond Manifesto, along with Professor Zvi Bodie, David Enna and Michael Ashton. The Manifesto was written for the Consumer Financial Protection Bureau for possible inclusion in the Bureau's recommendations for emergency fund investments.

Despite only being a few days old, it has already taken on a life of its own. It was just published in the Retirement Income Journal, has been posted to Linkedin, it's on the Inflation Guy app, and TreasuryDirect posted a tweet about it on the TreasuryDirect Twitter account.

I thought it was only appropriate that it also had a home here on the Bogleheads forum, so that folks who want to know more about the workings of these often-discussed I Bonds can have access to the article and the information contained therein.

Here's a link:

https://retirementincomejournal.com/art ... ?pdf=13017
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

Post by ApeAttack »

Very nice summary of the wonderful advantages of I-Bonds.
Just another lazy index investor who loves I-Bonds for my emergency fund (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
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Re: The I Bond Manifesto

Post by ivgrivchuck »

Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
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Re: The I Bond Manifesto

Post by smectym »

Mel Lindauer wrote: Thu Sep 23, 2021 10:51 pm I was pleased to be included in the crafting of this I Bond Manifesto, along with Professor Zvi Bodie, David Enna and Michael Ashton. The Manifesto was written for the Consumer Financial Protection Bureau for possible inclusion in the Bureau's recommendations for emergency fund investments.

Despite only being a few days old, it has already taken on a life of its own. It was just published in the Retirement Income Journal, has been posted to Linkedin, it's on the Inflation Guy app, and TreasuryDirect posted a tweet about it on the TreasuryDirect Twitter account.

I thought it was only appropriate that it also had a home here on the Bogleheads forum, so that folks who want to know more about the workings of these often-discussed I Bonds can have access to the article and the information contained therein.

Here's a link:

https://retirementincomejournal.com/art ... ?pdf=13017
Congratulations, we own some of these, and wish we had more
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Re: The I Bond Manifesto

Post by international001 »

I'm still trying to understand I bonds
In my mind they are like a Treasury bond of ~20 years (to simplify, I know they can be extended to 30 years)
Right now they have a yield above inflation over 0.10% (https://www.treasurydirect.gov/news/pre ... atespr.htm)
LT tips for 20 years have a yield above inflation about -0.50% (negative) (https://fred.stlouisfed.org/series/DFII20)

Why the extra yield? IS something our dear US Government gives for free?
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Re: The I Bond Manifesto

Post by z3r0c00l »

international001 wrote: Fri Sep 24, 2021 6:19 am I'm still trying to understand I bonds
In my mind they are like a Treasury bond of ~20 years (to simplify, I know they can be extended to 30 years)
Right now they have a yield above inflation over 0.10% (https://www.treasurydirect.gov/news/pre ... atespr.htm)
LT tips for 20 years have a yield above inflation about -0.50% (negative) (https://fred.stlouisfed.org/series/DFII20)

Why the extra yield? IS something our dear US Government gives for free?
It is a very small offering, not widely known, that was invented decades ago and they just keep it going probably out of sheer inertia. I am not sure it will last forever but until it does, it offers middle-class folk an option often superior to regular bonds. Zero risk, zero volatility, guaranteed to keep pace with inflation, and tax deferred and reduced for those of us in places like NYC. I bonds have always offered this but they have only recently caught on given the inflation bump this year.
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Re: The I Bond Manifesto

Post by nisiprius »

international001 wrote: Fri Sep 24, 2021 6:19 am I'm still trying to understand I bonds
In my mind they are like a Treasury bond of ~20 years (to simplify, I know they can be extended to 30 years)
Right now they have a yield above inflation over 0.10% (https://www.treasurydirect.gov/news/pre ... atespr.htm)
LT tips for 20 years have a yield above inflation about -0.50% (negative) (https://fred.stlouisfed.org/series/DFII20)

Why the extra yield? IS something our dear US Government gives for free?
No, they are not the least bit like Treasury bonds--not like nominal bonds and not like TIPS. "Bond" means any financial instrument that's governed by a precise contract, and thus includes many very different things.

The big difference, which people have difficult understanding, is that they have no interest rate sensitivity. Even "The I Bond Manifesto" doesn't make this perfectly clear. To me, the language "they offer a put option" is much less clear than "they have no interest rate risk." (And no inflation risk. And virtually no credit risk.)

This is made possible by the other unique thing about them which is that they are not a marketable security. (People trained in economics have trouble wrapping their head around that and persist in thinking there must be some clever away around it, and that your I bond should be valued according to what you would lend yourself if you hypothetically borrowed one from yourself; or how interest rate changes would affect the number of hamburgers you would accept in lieu of a $25 I bond.) I bonds are not sold, they are redeemed with the Treasury at an agreed on value which includes an inflation adjustment.

In theory--subject to practical details like the one-year delay before you can redeem them and the five-year period with the penalty--if new I bonds are issued with higher interest rates, you can do what marketable bond-holders can only wish for: redeem your old low-interest bonds and use the proceeds to buy new higher-interest bonds. With a marketable bond, this maneuver is useless because bond math guarantees that you will be selling your old bonds at a discount, and can only buy a smaller amount of the higher-interest bonds. Not so with I bonds.

Yes, like a number of things savings bonds have a social purpose, in this case encouraging thrift. At the time they were created, they also served the usual purpose of, simply, raising money for the government. The last time I tried to do back-of-the-envelope calculations, savings bonds represented something on the order of 1% of all Treasury debt, so it is not a completely negligible amount.

One reason why people "don't understand them" is that within the financial industry there is no way for anyone to make money from trading I bonds (because they can't be traded). There can't be an I Bond ETF. Thus in the writings of journalists and authors who are part of the culture of thee financial industry, there is no incentive to explain them. There are no tracking charts or breathless articles in Bloomberg or The Wall Street Journal, no talking heads on CNBC bloviating about what Evergrande might mean for I bonds. Another reason might be that these people see their audience as people to whom the annual purchase limit is chump change.
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Re: The I Bond Manifesto

Post by longshoreman »

thank you Mel
because of you I started 2001 have some paying over 5% today, but I did stop when fixed rate went to zero, just started up again
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Re: The I Bond Manifesto

Post by LadyGeek »

The manifesto is now in the wiki: I savings bonds (Further reading)

Mel Lindauer's link is to a PDF. The Retirement Income Journal published the manifesto on its website and offers a PDF download. Both links are in the wiki.
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Re: The I Bond Manifesto

Post by bluerafters »

Appreciate the link and article.
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Re: The I Bond Manifesto

Post by Bentonkb »

nisiprius wrote: Fri Sep 24, 2021 6:42 am In theory--subject to practical details like the one-year delay before you can redeem them and the five-year period with the penalty--if new I bonds are issued with higher interest rates, you can do what marketable bond-holders can only wish for: redeem your old low-interest bonds and use the proceeds to buy new higher-interest bonds. With a marketable bond, this maneuver is useless because bond math guarantees that you will be selling your old bonds at a discount, and can only buy a smaller amount of the higher-interest bonds. Not so with I bonds.
I bought I bonds for the first time this year, so I haven't thought about this idea of redeeming them to get a better fixed rate. Can you spell out how to reason through the decision?

It seems like a pretty complicated problem because you have to consider the potential loss of some coupon payments on the bond you are redeeming, the one year lock-out provision on the new bond, and the potential for further rate increases in the next five years.
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Re: The I Bond Manifesto

Post by jason2459 »

There's also the mater of limited amount can be purchased each year. If someone is maxing out that purchase amount each year they would have to weigh redemption and re-purchase and having that reduce a year of new allocations.
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Re: The I Bond Manifesto

Post by Grt2bOutdoors »

ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: The I Bond Manifesto

Post by JBTX »

Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
You can do both.
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Re: The I Bond Manifesto

Post by ray.james »

I wonder if Mel and tipswatcher (David Enna) haven't been advocating these in investing forums, how many bogleheads would even know them! I hope this article reaches further into common people.

I still found it sad from Jason Zweig article that redemptions have been higher than purchases of I-bonds. The older bonds have higher fixed rates too. Cryptos are the bling now!
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Re: The I Bond Manifesto

Post by Grt2bOutdoors »

JBTX wrote: Fri Sep 24, 2021 11:32 am
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
You can do both.
I read the treasury regs on use of trusts and they indicated it needed a separate EIN number. Don’t you use your regular TIN for a living trust? Can you really buy as much as $40k (2 trusts and individually for a married couple)? I’m trying to learn the mechanics of this.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: The I Bond Manifesto

Post by JBTX »

Grt2bOutdoors wrote: Fri Sep 24, 2021 11:38 am
JBTX wrote: Fri Sep 24, 2021 11:32 am
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
You can do both.
I read the treasury regs on use of trusts and they indicated it needed a separate EIN number. Don’t you use your regular TIN for a living trust? Can you really buy as much as $40k (2 trusts and individually for a married couple)? I’m trying to learn the mechanics of this.
My understanding is the social security number can be the same. Hope so, because that is what I did. Yes, if you have 2 RLTs a married couple could put in $40k per year.

https://thefinancebuff.com/buy-more-i-b ... trust.html
Tax ID

A revocable living trust typically uses the grantor’s Social Security Number as its Tax ID. The trust account at TreasuryDirect can still use the grantor’s Social Security Number even though the grantor also has a personal account with TreasuryDirect under the same Social Security Number.
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Re: The I Bond Manifesto

Post by SafeBonds »

Thank you Mel. I'm a big fan of you, Zvi Bodie, and David Enna (Tipswatch). I will look into Michael Ashton.

I'll mention here on May 28 of this year, Jason Zweig wrote a Wall Street Journal article extolling I-Bonds in this column "The Intelligent Investor".

https://www.wsj.com/articles/i-bonds-th ... 1622213324
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Re: The I Bond Manifesto

Post by Mel Lindauer »

SafeBonds wrote: Fri Sep 24, 2021 12:27 pm Thank you Mel. I'm a big fan of you, Zvi Bodie, and David Enna (Tipswatch). I will look into Michael Ashton.

I'll mention here on May 28 of this year, Jason Zweig wrote a Wall Street Journal article extolling I-Bonds in this column "The Intelligent Investor".

https://www.wsj.com/articles/i-bonds-th ... 1622213324
Jason is one of the good guys. He interviewed me for that article, but I don't get the Journal, so I didn't see it. And your link is behind a paywall, so I still can't read it either.

However, knowing Jason, I'm sure it's a good article that helped educate readers about the workings and advantages of I Bonds.
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

Post by JamesSFO »

Neat, thanks Mel!
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Re: The I Bond Manifesto

Post by tomsense76 »

Congratulations Mel! That's great :D

Really appreciate having learned about I Bonds from this forum and previous articles of yours on the subject. Glad to see more people will learn about them as well.
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Re: The I Bond Manifesto

Post by SnowBog »

JBTX wrote: Fri Sep 24, 2021 11:48 am
Grt2bOutdoors wrote: Fri Sep 24, 2021 11:38 am
JBTX wrote: Fri Sep 24, 2021 11:32 am
Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
You can do both.
I read the treasury regs on use of trusts and they indicated it needed a separate EIN number. Don’t you use your regular TIN for a living trust? Can you really buy as much as $40k (2 trusts and individually for a married couple)? I’m trying to learn the mechanics of this.
My understanding is the social security number can be the same. Hope so, because that is what I did. Yes, if you have 2 RLTs a married couple could put in $40k per year.

https://thefinancebuff.com/buy-more-i-b ... trust.html
Tax ID

A revocable living trust typically uses the grantor’s Social Security Number as its Tax ID. The trust account at TreasuryDirect can still use the grantor’s Social Security Number even though the grantor also has a personal account with TreasuryDirect under the same Social Security Number.
Actually $45k if you include the $5k paper I Bonds via Tax refunds.

That's how much we bought this year between personal and trust accounts for each spouse plus tax return.
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Re: The I Bond Manifesto

Post by dcw213 »

Thank you Mel. Because of you, my wife and I have maxed out I-bond purchases since 2011. We have been very pleased with the results.

For nearly all of the last decade, they have more than kept pace with yields on alternative risk free liquid investments, acting as a superior emergency fund during this time. This year they are exhibiting the protection that we were buying. I feel fortunate to have a nice chunk of my emergency fund and part of my fixed income allocation that will be yielding around 10x risk free comps in the current period.

Thank you Mel, it is clear that you have helped educate and benefit many people with your educational pieces and posts!
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Re: The I Bond Manifesto

Post by SnowBog »

jason2459 wrote: Fri Sep 24, 2021 10:43 am There's also the mater of limited amount can be purchased each year. If someone is maxing out that purchase amount each year they would have to weigh redemption and re-purchase and having that reduce a year of new allocations.
I think this depends on the investor...

For myself (and seemingly you as well), I'm planning on maxing out I Bonds from now on until I retire (after that, we'll see...). So I wouldn't be interested in the "put" concept as I haven't reached the amount of I Bonds I want yet.

But for those who are only holding a finite amount, such as only their Emergency Fund, in I Bonds, the limits wouldn't matter (or matter as much). For example, if someone wanted $20k of I Bonds, after 2 years (or potentially 1 if married) they could have reached their goal. So if 4 years later, new bonds are issued with a higher fixed rate - since they hadn't planned to purchase any that year anyway - they could redeem the prior bonds (at least $10k) and purchase new bonds at the higher rate.
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Re: The I Bond Manifesto

Post by SnowBog »

dcw213 wrote: Fri Sep 24, 2021 1:17 pm Thank you Mel, it is clear that you have helped educate and benefit many people with your educational pieces and posts!
Agreed!

I'm late to join the party, only started buying I Bonds last year. But Mel's insightful posts, articles, and responses were critical to helping me see their benefits!

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Re: The I Bond Manifesto

Post by Mel Lindauer »

dcw213 wrote: Fri Sep 24, 2021 1:17 pm Thank you Mel. Because of you, my wife and I have maxed out I-bond purchases since 2011. We have been very pleased with the results.

For nearly all of the last decade, they have more than kept pace with yields on alternative risk free liquid investments, acting as a superior emergency fund during this time. This year they are exhibiting the protection that we were buying. I feel fortunate to have a nice chunk of my emergency fund and part of my fixed income allocation that will be yielding around 10x risk free comps in the current period.

Thank you Mel, it is clear that you have helped educate and benefit many people with your educational pieces and posts!
Glad to hear that your I Bonds are working out well for you. And thanks for the kind words.
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

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nisiprius wrote: Fri Sep 24, 2021 6:42 amThe big difference, which people have difficult understanding, is that they have no interest rate sensitivity. Even "The I Bond Manifesto" doesn't make this perfectly clear. To me, the language "they offer a put option" is much less clear than "they have no interest rate risk."
I doubt that the general public -- for whom Buy ‘I Bonds’ and Worry Less about Inflation aka The I Bond Manifesto is presumably intended -- will understand either "put option" or "interest rate risk". The average saver would more likely understand them described as a 30-year CD whose interest rate is adjusted to compensate for inflation.

The article's third paragraph recommends considering them as an emergency fund. But, like a CD, they wouldn't be pleasant to redeem for an emergency if interest rates have fallen. If the only emergency fund I had was a 0.5% fixed rate I Bond issued from November 2018 through October 2019, I wouldn't be happy redeeming it knowing that, after I'd recovered from the emergency, I could only replace it with a 0% fixed rate I Bond. (This is in addition to the 3-month interest penalty I'd incur for redemption before five years.) So the lack of interest rate sensitivity is not an unalloyed benefit.
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Re: The I Bond Manifesto

Post by ivgrivchuck »

Grt2bOutdoors wrote: Fri Sep 24, 2021 10:43 am
ivgrivchuck wrote: Thu Sep 23, 2021 11:38 pm Nice article!

My wife and I just opened living trusts (one for each spouse) to buy some more of these goodies...
Are you using living trusts plus purchasing them on an individual basis or just the living trust only?
$10k using individual account
$10k using my trust account (using my own SSN)
$10k wife's individual account
$10k wife's trust account (using her SSN)
$5k from tax return
$10k per child (gifting)

This is good information:
https://thefinancebuff.com/buy-more-i-b ... trust.html
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
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Re: The I Bond Manifesto

Post by Mel Lindauer »

#Cruncher wrote: Fri Sep 24, 2021 4:22 pm
nisiprius wrote: Fri Sep 24, 2021 6:42 amThe big difference, which people have difficult understanding, is that they have no interest rate sensitivity. Even "The I Bond Manifesto" doesn't make this perfectly clear. To me, the language "they offer a put option" is much less clear than "they have no interest rate risk."
I doubt that the general public -- for whom Buy ‘I Bonds’ and Worry Less about Inflation aka The I Bond Manifesto is presumably intended -- will understand either "put option" or "interest rate risk". The average saver would more likely understand them described as a 30-year CD whose interest rate is adjusted to compensate for inflation.

The article's third paragraph recommends considering them as an emergency fund. But, like a CD, they wouldn't be pleasant to redeem for an emergency if interest rates have fallen. If the only emergency fund I had was a 0.5% fixed rate I Bond issued from November 2018 through October 2019, I wouldn't be happy redeeming it knowing that, after I'd recovered from the emergency, I could only replace it with a 0% fixed rate I Bond. (This is in addition to the 3-month interest penalty I'd incur for redemption before five years.) So the lack of interest rate sensitivity is not an unalloyed benefit.
This was written for inclusion in The Consumer Financial Protection Bureau's section on creating an emergency fund. It's meant to supplement their current recommendations (cash and savings accounts) which are taxable and paying next to nothing, so the I Bonds are the clear winner under just about any circumstances at the present time.

As you know, even the 0% fixed rate I Bonds are currently paying 3.54% and it appears that the November rare will be even higher. So there's lots of room to still come out way ahead, even with the 3-month penalty for redemption prior to five years when compared to the other risk-free options.

And, at the current time, if one buys today's 0% I Bonds and needs to redeem them and replace them later, they can't do any worse than the current 0%.

And, on the forum, we don't recommend dumping all of one's emergency fund into I Bonds at the same time, but rather feeding them in to help offset the one-year lock.

Finally, don't know if it's been tested yet, but the pandemic has been declared an emergency, and it will be interesting to see if any lock period or penalty will be assessed or forgiven if one uses the emergency as their excuse for early redemption.
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

Post by SnowBog »

Mel, you inspired me to attempt to create a companion piece for EE Bonds as a derivative of your excellent I Bond Manifesto. As I note in the post, I give you and your co-authors full credit – as I borrowed significantly from your I Bond Manifesto.

Thank you for everything you’ve done, and continue to do, to help educate new generations of investors!

viewtopic.php?f=10&t=358793&newpost=6243131
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Re: The I Bond Manifesto

Post by dodecahedron »

ray.james wrote: Fri Sep 24, 2021 11:35 am I wonder if Mel and tipswatcher (David Enna) haven't been advocating these in investing forums, how many bogleheads would even know them! I hope this article reaches further into common people.
I am a Boglehead who would know about them even without Bogleheads!

I had the pleasure of meeting Zvi Bodie long before the Bogleheads existed, as he was a former colleague and friend of my late husband's. (My husband also used Zvi's canonical finance textbook in the finance courses he taught.) I read Zvi's work advocating I bonds and TIPS well before I discovered the Bogleheads.

I also knew Larry Summers, who is generally given credit for championing the idea that Treasury should issue inflation adjusted securities back when he was Deputy Secretary of Treasury in the mid-1990s.

That said, I do give credit and major props to Bogleheads (and David Enna's blog) and Jason Zweig for *keeping* them on my radar screen!
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Re: The I Bond Manifesto

Post by Mel Lindauer »

dodecahedron wrote: Fri Sep 24, 2021 8:10 pm
ray.james wrote: Fri Sep 24, 2021 11:35 am I wonder if Mel and tipswatcher (David Enna) haven't been advocating these in investing forums, how many bogleheads would even know them! I hope this article reaches further into common people.
I am a Boglehead who would know about them even without Bogleheads!

I had the pleasure of meeting Zvi Bodie long before the Bogleheads existed, as he was a former colleague and friend of my late husband's. (My husband also used Zvi's canonical finance textbook in the finance courses he taught.) I read Zvi's work advocating I bonds and TIPS well before I discovered the Bogleheads.

I also knew Larry Summers, who is generally given credit for championing the idea that Treasury should issue inflation adjusted securities back when he was Deputy Secretary of Treasury in the mid-1990s.

That said, I do give credit and major props to Bogleheads (and David Enna's blog) and Jason Zweig for *keeping* them on my radar screen!
Yes, Zvi and I were early supporters of I Bonds. I actually wrote "The I Bond Tutorial" on Morningstar in late 1998 or early 1999. Since there were very few of us promoting I Bonds, I was interviewed a number of times by reporters who were doing stories on something that they thought sounded good but that they didn't understand (I Bonds).

Back in those days, the fixed rate was 3.3% and it then went to 3.4% and eventually to 3.6% before starting a long downward trend. However, lots of Bogleheads loaded up on them back then when you could get the high fixed rates, and could buy $30K per SS# AND put the purchase on a credit card! As they say, "Those were the days!".
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

Post by runcyc »

Yes, there wasn't a large amount of promotional marketing for Treasury Direct I-bonds in the late 90's. I first heard of them, listening to Bob Brinker's Saturday afternoon radio program, "Money Talk". He described them as a 'gift", with their relatively high guaranteed interest rate minimum, during that period. And $30K purchase limit per year. My wife and I each contributed the max, for several years. I still hold them all. And, used several 0% APR credit cards to purchase the I-bonds, earning a cash rebate on each purchase, and eventually applying for more 0% APR credit cards...with cash rebates and 0% balance transfer fees, 😀 We could have paid cash, but why do so, with deals like that?
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Re: The I Bond Manifesto

Post by Mel Lindauer »

runcyc wrote: Fri Sep 24, 2021 11:23 pm Yes, there wasn't a large amount of promotional marketing for Treasury Direct I-bonds in the late 90's. I first heard of them, listening to Bob Brinker's Saturday afternoon radio program, "Money Talk". He described them as a 'gift", with their relatively high guaranteed interest rate minimum, during that period. And $30K purchase limit per year. My wife and I each contributed the max, for several years. I still hold them all. And, used several 0% APR credit cards to purchase the I-bonds, earning a cash rebate on each purchase, and eventually applying for more 0% APR credit cards...with cash rebates and 0% balance transfer fees, 😀 We could have paid cash, but why do so, with deals like that?
Agree. They made the rules and we simply played by their rules, much to our advantage. It was great while it lasted, but, unfortunately, most good things like this eventually come to an end.
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Re: The I Bond Manifesto

Post by international001 »

nisiprius wrote: Fri Sep 24, 2021 6:42 am

The big difference, which people have difficult understanding, is that they have no interest rate sensitivity. Even "The I Bond Manifesto" doesn't make this perfectly clear. To me, the language "they offer a put option" is much less clear than "they have no interest rate risk." (And no inflation risk. And virtually no credit risk.)
thanks for the explanation.
So then if interest rates go down, you can still only redeem them for the original price? (marketable price would be higher). It would be sad if you had to do this because an emergency, I guess.

So do you think it's fair to characterize them as a TIP with one day of maturity (with continuous rollover but with the fixed rate guaranteed for 20 years)?
Since 1 day TIP has lower rates than a 20 year TIP, it seems it's an extra that the treasury is giving, no?
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Re: The I Bond Manifesto

Post by beyou »

Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?

Seems to me if one is greedy when others are fearful, fearful when others are greedy, you can come out ahead and have easier access to your funds. People are getting excited now about inflation, and if correct, VTIP will work out fine. If wrong, and inflation reverts to recent lows, rates on I bonds would likely drop too, but you have the lockup for a year, and penalty/incentive to hold for 5 years. I can get into/out of VTIP anytime, for emergencies, or to rebalance (out of bonds and/or inflation portion of bonds).

I already have lots of savings bonds, but thinking going fwd I don’t want my money locked up. E bonds I wouldn’t even consider buying new now in my late 50s, but I bonds I bought earlier this year, assuming 5 year hold to early 60s. Not sure I will buy more, after I retire and the value of deferral is reduced. Even if managing for ACA subsidy, buying I bonds past 60 means income deferral past Medicare, which seems not needed. I still live in a high tax state, so avoiding state tax is great, but Treasury backed funds mainly distribute income free from state income tax. So seems almost same savings bonds vs TIPS from a tax elimination standpoint. If anything, postponing income might hurt, if it adds to RMD AND SS later. I think my last savings bonds has been purchased, or close to it. If we keep working might make sense next year, but I think that is it for me. Time to start thinking simplify, stay liquid, both mean consolidation to funds I can hold in my taxable accounts. Maybe VAIPX as well. When/if my ibond rates drop, probably a good time to sell them, and buy TIPS (buy low). I realize one can take a loss on TIPS, then that will offset cap gains. Also over time I think TIPS will do as well as I Bonds, just a more bumpy ride ! That or having $ held hostage by Tsy Direct.
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Re: The I Bond Manifesto

Post by Mel Lindauer »

beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?

Seems to me if one is greedy when others are fearful, fearful when others are greedy, you can come out ahead and have easier access to your funds. People are getting excited now about inflation, and if correct, VTIP will work out fine. If wrong, and inflation reverts to recent lows, rates on I bonds would likely drop too, but you have the lockup for a year, and penalty/incentive to hold for 5 years. I can get into/out of VTIP anytime, for emergencies, or to rebalance (out of bonds and/or inflation portion of bonds).

I already have lots of savings bonds, but thinking going fwd I don’t want my money locked up. E bonds I wouldn’t even consider buying new now in my late 50s, but I bonds I bought earlier this year, assuming 5 year hold to early 60s. Not sure I will buy more, after I retire and the value of deferral is reduced. Even if managing for ACA subsidy, buying I bonds past 60 means income deferral past Medicare, which seems not needed. I still live in a high tax state, so avoiding state tax is great, but Treasury backed funds mainly distribute income free from state income tax. So seems almost same savings bonds vs TIPS from a tax elimination standpoint. If anything, postponing income might hurt, if it adds to RMD AND SS later. I think my last savings bonds has been purchased, or close to it. If we keep working might make sense next year, but I think that is it for me. Time to start thinking simplify, stay liquid, both mean consolidation to funds I can hold in my taxable accounts. Maybe VAIPX as well. When/if my ibond rates drop, probably a good time to sell them, and buy TIPS (buy low). I realize one can take a loss on TIPS, then that will offset cap gains. Also over time I think TIPS will do as well as I Bonds, just a more bumpy ride ! That or having $ held hostage by Tsy Direct.
Whatever works for you. I just can't justify buying something with a known negative real yield when I Bonds can never go negative. And I like the additional tax-deferred space that I Bonds offer, plus the options to be tax-free if used for qualifying educational expenses as well as freedom from state and local taxation. (Not sure how the TIPS fund works in the various states.)
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Re: The I Bond Manifesto

Post by beyou »

Mel Lindauer wrote: Wed Sep 29, 2021 4:43 pm
beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?

Seems to me if one is greedy when others are fearful, fearful when others are greedy, you can come out ahead and have easier access to your funds. People are getting excited now about inflation, and if correct, VTIP will work out fine. If wrong, and inflation reverts to recent lows, rates on I bonds would likely drop too, but you have the lockup for a year, and penalty/incentive to hold for 5 years. I can get into/out of VTIP anytime, for emergencies, or to rebalance (out of bonds and/or inflation portion of bonds).

I already have lots of savings bonds, but thinking going fwd I don’t want my money locked up. E bonds I wouldn’t even consider buying new now in my late 50s, but I bonds I bought earlier this year, assuming 5 year hold to early 60s. Not sure I will buy more, after I retire and the value of deferral is reduced. Even if managing for ACA subsidy, buying I bonds past 60 means income deferral past Medicare, which seems not needed. I still live in a high tax state, so avoiding state tax is great, but Treasury backed funds mainly distribute income free from state income tax. So seems almost same savings bonds vs TIPS from a tax elimination standpoint. If anything, postponing income might hurt, if it adds to RMD AND SS later. I think my last savings bonds has been purchased, or close to it. If we keep working might make sense next year, but I think that is it for me. Time to start thinking simplify, stay liquid, both mean consolidation to funds I can hold in my taxable accounts. Maybe VAIPX as well. When/if my ibond rates drop, probably a good time to sell them, and buy TIPS (buy low). I realize one can take a loss on TIPS, then that will offset cap gains. Also over time I think TIPS will do as well as I Bonds, just a more bumpy ride ! That or having $ held hostage by Tsy Direct.
Whatever works for you. I just can't justify buying something with a known negative real yield when I Bonds can never go negative. And I like the additional tax-deferred space that I Bonds offer, plus the options to be tax-free if used for qualifying educational expenses as well as freedom from state and local taxation. (Not sure how the TIPS fund works in the various states.)
Missed half of my points.

At a certain age tax deferred should no longer be a priority. Important to early-mid career at peak earnings. Why does that matter in retirement ? I made it clear why I do not want to push the int income to 70+.

Similarly, most nearing retirement educational use is no longer a priority. Also the ability to use for education is not a factor for many people, my income was too high for that when my kids were college age, and not sure I wanted to cash them in yet at that age anyway.

Total return of short-term tips was about 2% per year on average for many years. Yield (which is also total return on i bonds) varies greatly from year to year (like ST TIPS) but similar over last 10 years vs ST TIPS fund. Real yield does not matter, total return matters.

My point was at some earlier age, continuing to add E makes no sense (if not holding 20 years). At some point later adding I also may not make sense as there is a highly liquid alternative with similar profile. What really got me thinking about this topic was the recent thread about signature guarantee. It really bothers me that the Treasury required something so unrealistic, time consuming to simply add a bank to your online acct. I can easily add a bank to Vanguard, why does TD have to make it so hard. Easier to buy/sell ST tips fund using any bank I want at Vanguard.
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Re: The I Bond Manifesto

Post by ivgrivchuck »

beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?
Why would anyone choose -1.8% real return with interest rate risk over 0% real return w/o interest rate risk?
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
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Re: The I Bond Manifesto

Post by beyou »

ivgrivchuck wrote: Wed Sep 29, 2021 7:23 pm
beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?
Why would anyone choose -1.8% real return with interest rate risk over 0% real return w/o interest rate risk?
You are confusing real yield vs return.
Not the same.
Look at the avg performance of the fund, it’s pretty much in line with the trend of i bond yields over many years.
And you can invest more, more conveniently.
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Re: The I Bond Manifesto

Post by AlwaysLearningMore »

Mel is one of the few who were extolling the benefits of I Bonds -- no doubt in these times a lot more investors had heard that clarion years ago.
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Re: The I Bond Manifesto

Post by ivgrivchuck »

beyou wrote: Wed Sep 29, 2021 7:35 pm
ivgrivchuck wrote: Wed Sep 29, 2021 7:23 pm
beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?
Why would anyone choose -1.8% real return with interest rate risk over 0% real return w/o interest rate risk?
You are confusing real yield vs return.
Not the same.
Look at the avg performance of the fund, it’s pretty much in line with the trend of i bond yields over many years.
And you can invest more, more conveniently.
You are confusing historical returns vs expected returns. Not the same.

Especially for bonds historical returns are practically meaningless....
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
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Re: The I Bond Manifesto

Post by beyou »

ivgrivchuck wrote: Wed Sep 29, 2021 8:07 pm
beyou wrote: Wed Sep 29, 2021 7:35 pm
ivgrivchuck wrote: Wed Sep 29, 2021 7:23 pm
beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?
Why would anyone choose -1.8% real return with interest rate risk over 0% real return w/o interest rate risk?
You are confusing real yield vs return.
Not the same.
Look at the avg performance of the fund, it’s pretty much in line with the trend of i bond yields over many years.
And you can invest more, more conveniently.
You are confusing historical returns vs expected returns. Not the same.

Especially for bonds historical returns are practically meaningless....
But for equities you can tell us the expected returns ?
If so who needs bonds ?

Correlation can tell us information.
Return of i bonds is and should be correlated with TIPS.
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Re: The I Bond Manifesto

Post by ivgrivchuck »

beyou wrote: Wed Sep 29, 2021 8:10 pm But for equities you can tell us the expected returns ?
It's off-topic, but if you are interested, it's annually around 4-6% real or 6-8% nominal over the next 20 years or so.
If so who needs bonds ?
Well, the annualized volatility of stocks is around 15%-20% which is a bit too much for most of us. Plus it's prudent to have some protection against black swans.
Correlation can tell us information.
Return of i bonds is and should be correlated with TIPS.
Of course they are correlated. It doesn't mean that they are equally good.
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Re: The I Bond Manifesto

Post by Mel Lindauer »

beyou wrote: Wed Sep 29, 2021 6:55 pm
Mel Lindauer wrote: Wed Sep 29, 2021 4:43 pm
beyou wrote: Wed Sep 29, 2021 4:31 pm Given the MSG hassles of Tsy Direct, and the 1 year lockup,
why not use VTAPX / VTIP instead ?

Seems to me if one is greedy when others are fearful, fearful when others are greedy, you can come out ahead and have easier access to your funds. People are getting excited now about inflation, and if correct, VTIP will work out fine. If wrong, and inflation reverts to recent lows, rates on I bonds would likely drop too, but you have the lockup for a year, and penalty/incentive to hold for 5 years. I can get into/out of VTIP anytime, for emergencies, or to rebalance (out of bonds and/or inflation portion of bonds).

I already have lots of savings bonds, but thinking going fwd I don’t want my money locked up. E bonds I wouldn’t even consider buying new now in my late 50s, but I bonds I bought earlier this year, assuming 5 year hold to early 60s. Not sure I will buy more, after I retire and the value of deferral is reduced. Even if managing for ACA subsidy, buying I bonds past 60 means income deferral past Medicare, which seems not needed. I still live in a high tax state, so avoiding state tax is great, but Treasury backed funds mainly distribute income free from state income tax. So seems almost same savings bonds vs TIPS from a tax elimination standpoint. If anything, postponing income might hurt, if it adds to RMD AND SS later. I think my last savings bonds has been purchased, or close to it. If we keep working might make sense next year, but I think that is it for me. Time to start thinking simplify, stay liquid, both mean consolidation to funds I can hold in my taxable accounts. Maybe VAIPX as well. When/if my ibond rates drop, probably a good time to sell them, and buy TIPS (buy low). I realize one can take a loss on TIPS, then that will offset cap gains. Also over time I think TIPS will do as well as I Bonds, just a more bumpy ride ! That or having $ held hostage by Tsy Direct.
Whatever works for you. I just can't justify buying something with a known negative real yield when I Bonds can never go negative. And I like the additional tax-deferred space that I Bonds offer, plus the options to be tax-free if used for qualifying educational expenses as well as freedom from state and local taxation. (Not sure how the TIPS fund works in the various states.)
Missed half of my points.

At a certain age tax deferred should no longer be a priority. Important to early-mid career at peak earnings. Why does that matter in retirement ? I made it clear why I do not want to push the int income to 70+.

Similarly, most nearing retirement educational use is no longer a priority. Also the ability to use for education is not a factor for many people, my income was too high for that when my kids were college age, and not sure I wanted to cash them in yet at that age anyway.

Total return of short-term tips was about 2% per year on average for many years. Yield (which is also total return on i bonds) varies greatly from year to year (like ST TIPS) but similar over last 10 years vs ST TIPS fund. Real yield does not matter, total return matters.

My point was at some earlier age, continuing to add E makes no sense (if not holding 20 years). At some point later adding I also may not make sense as there is a highly liquid alternative with similar profile. What really got me thinking about this topic was the recent thread about signature guarantee. It really bothers me that the Treasury required something so unrealistic, time consuming to simply add a bank to your online acct. I can easily add a bank to Vanguard, why does TD have to make it so hard. Easier to buy/sell ST tips fund using any bank I want at Vanguard.
No, I didn't miss any of your points. That's why I said:
Whatever works for you.
I then went on to explain what works for ME.
I just can't justify buying something with a known negative real yield when I Bonds can never go negative. And I like the additional tax-deferred space that I Bonds offer, plus the options to be tax-free if used for qualifying educational expenses as well as freedom from state and local taxation. (Not sure how the TIPS fund works in the various states.)
Best Regards - Mel | | Semper Fi
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Re: The I Bond Manifesto

Post by beyou »

I will reiterate that my initial objection to MORE bonds was due to the threads about the signature guarantee problems for making changes to existing TD accounts (bank add/edit). I reached out to TD and noted their seemingly acceptable response on another thread :

viewtopic.php?p=6253482#p6253482

I have lots of older I bonds (most with 1.0 and higher fixed rates - yeah!!!!), and older E bonds soon to hit 20 years, but I was questioning if I will keep buying more.

My other non-financial concern is a desire to simplify and consolidate for spouse/heirs. I have 2 brokerage accounts (taxable, 4 IRA at one, taxable only at other) TD, 401k, 2 banks. Not bad compared to many, but already decided I want to gradually reduce and close down what I have outside my main brokerage.
TD can never be my main investments (for many obvious reasons) but it is a nice complement.
I just wonder if the hassle is worth it for what is a complement, not a major percentage of my whole picture.
It has added up over the years to a nice amount, but so has my 401k, and other accounts, and TD is still a small % despite many years of buying.

I already had stopped buying a few years ago due to the now 0 fixed rate on I (and 20 years horizon for E to be worthwhile).
If I buy again at 0 fixed rate, I would consider that a short term investment, held for 5 years to avoid interest penalty.
OTOH my 1.0 % fixed rate bonds I hope to hold to maturity as they are beating inflation. That may be all I'll have left after E bonds hit 20 years
and 0 rate I bonds pass 5 years. But not going to cut off my nose to spite my face and get rid of the really good issues. Eventually they will mature and the account will be closed.
Last edited by beyou on Fri Oct 01, 2021 11:52 pm, edited 1 time in total.
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Re: The I Bond Manifesto

Post by zaboomafoozarg »

Nice, I'll have to look this through.

I really wish my net worth had been more than 4 figures when the I Bond fixed rate was 3%.
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Re: The I Bond Manifesto

Post by SnowBog »

I completely understand your perspectives!

At current, my 45 year old self thinks that the last I/EE Bonds I plan to purchase will be those I purchase before I retire.

My primary reason for buying them was to help provide an "income floor" from my planned early retirement until delayed social security/pensions kick in at 70. I'll have met that need if I stop buying them at retirement...

And again - my 45 year old self - thinks I'd like to have fewer accounts to manage and transfer to my spouse/heirs when that day eventually comes...

But assuming I Bonds look as good when we retire as they do now (and assuming we have the "income" to continue buying them), I'll be tempted to keep buying them...

The only point of yours I'd potentially object to is the perception of having to hold for 5 years. From my perspective, there are few [if any] comparable alternatives - even with the interest penalty - that comes close to the same rate. If my alternative is earning something like 0.5% in a bank vs. the much higher I Bond rate - I wouldn't care about the 3 month interest penalty (as even with the penalty, I Bonds will still be far better).
beyou wrote: Fri Oct 01, 2021 11:50 am If I buy again at 0 fixed rate, I would consider that a short term investment, held for 5 years to avoid interest penalty.
I should note that most of my "cash" [excluding I Bonds - which are "cash like"] is in HMBradely currently earning 3.5% with their 0.5% credit card boost. Obviously no idea if that will be a flash-in-the-pan, or for how long they'll maintain a "higher" rate (even if not 3.5%). And obviously, no idea how that will compare against inflation... But $40k of the money in HMB will be pulled out in January to buy next years allotment of I Bonds (1x per spouse + 1x for each spouse living trust).
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Re: The I Bond Manifesto

Post by beyou »

Well I see 5 years as a shorter term investment and it was not a reason to avoid I bonds. I am thinking long term. 20 years for E is too long a horizon past 50, IMO. But 5 years at 50 or 60 seems fine. I do agree, if one had to liquidate sooner, still preferable to savings accounts, CD etc. Anything longer than 5 years (now in my 50s maybe until 60), I am thinking my heirs would appreciate getting a larger brokerage acct that may contain Short-term tips and more, and avoid dealing with TD nor 401k in addition to Vanguard. So maybe you could buy an I bond at 70 and keep for a year, but why ? Either you don’t mind having the TD account or you do, and if not why not hold longer ?
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Re: The I Bond Manifesto

Post by SnowBog »

Agreed - there's a "balance" in there somewhere... But my working theory is - assuming I'm OK keeping my TD account [as you point out] - then its really a question of do I Bonds make sense at that point for your needs? I'm assuming the answer is yes [assuming you are OK keeping TD account].

I just don't see the relevance of 5 years. (I didn't think you were stating that as a reason for or against... Again I just don't see the relevance...)

If they are paying out out more than alternatives, I'll keep them for as long as makes sense (based on when I need the money, tax optimization, and if/when I want to shut down TD account and/or simplify my holdings). If they are paying out less (or my priority becomes simplification/eliminating accounts), then sell them and be done. I just don't see how the 5 year timeline - and avoiding the interest penalty is relevant... I mean if I had an I Bond that was in its 4th year, I'd probably wait... But if I get to the point I Bonds aren't "adding" to my needs anymore, I'd be willing to liquidate 1-4 year old bonds as well - I can't imagine "waiting"...
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