Are iBonds still a no-brainer?

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Rachel5590
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Are iBonds still a no-brainer?

Post by Rachel5590 »

I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
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Re: Are iBonds still a no-brainer?

Post by retired@50 »

Rachel5590 wrote: Mon Jan 09, 2023 9:55 am I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
If your portfolio is still in need of inflation protected US savings bonds, then sure, they're a no-brainer.

However, if your portfolio is low on US or international equities, then buying I-bonds doesn't help.

Regards,
This is one person's opinion. Nothing more.
captain2012
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Re: Are iBonds still a no-brainer?

Post by captain2012 »

I'd wait until April to decide.

(Giving the trend of CPI, it's possible we would see I bond interest drops below 5% starting from May 2023 and even further in Nov 2023. On the other hand, Fed is showing no sign to lower interest rate until end of 2023 which means you could possibly lock in 4-5% interest for 3-5 more years on treasuries and CDs..)
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Re: Are iBonds still a no-brainer?

Post by 9-5 Suited »

I don’t think they are a no-brainer at all. A 30 year TIPS bond pays 1.4% real vs. 0.4% real for an iBond. If holding the TIPS in a tax deferred account, it will mature with significantly more value most likely. The price along the way will be subject to market fluctuation, so if there is a good chance you would withdraw principal early then the stable, liquid principal of the iBond may be more attractive.
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Re: Are iBonds still a no-brainer?

Post by FireProof »

retired@50 wrote: Mon Jan 09, 2023 9:58 am
Rachel5590 wrote: Mon Jan 09, 2023 9:55 am I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
If your portfolio is still in need of inflation protected US savings bonds, then sure, they're a no-brainer.

However, if your portfolio is low on US or international equities, then buying I-bonds doesn't help.

Regards,
He's asking if they are a better investment than alternatives in a general sense. And no good in saying it's an efficient market, so all investments are equal by definition, because IBond rates are not set by the market. It was reasonable to believe that pretty much everybody should have bought the maximum IBonds allowed last year, regardless of their desired or actual asset allocation, because 8.5% guaranteed return was simply better than the alternatives, in the same way paying off a student loan at 8.5% could be clearly better than maintaining the debt and buying a target date fund.
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Re: Are iBonds still a no-brainer?

Post by poker27 »

I've got a decent chunk of Ibonds I purchased years back for my EF. Paying nearly 7% (for 6 months) makes it a no brainer for me to purchase this month. I fully do expect the 7% rate to drop in May, and I will reconsider my Ibond position, and very well might sell off to buy Treasuries or something.
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Re: Are iBonds still a no-brainer?

Post by 9-5 Suited »

captain2012 wrote: Mon Jan 09, 2023 10:01 am I'd wait until April to decide.

(Giving the trend of CPI, it's possible we would see I bond interest drops below 5% starting from May 2023 and even further in Nov 2023. On the other hand, Fed is showing no sign to lower interest rate until end of 2023 which means you could possibly lock in 4-5% interest for 3-5 more years on treasuries and CDs..)
Market timing interest rates is a futile effort, and focusing on the current semi-annual iBond rate is a pretty big error in thought process. You buy iBonds or TIPS for protection against future unexpected inflation, which can’t be known when you buy. It’s insurance.

The thing that really matters is the real rate being paid on the inflation protected bonds and how exposed the investor is to inflation risk. If the second answer is “high”, then the choice really comes down to TIPS or iBonds and which pays a better real rate (and liquidity needs and taxes).
Last edited by 9-5 Suited on Mon Jan 09, 2023 10:20 am, edited 1 time in total.
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Re: Are iBonds still a no-brainer?

Post by Big Dog »

Depends on your age and assets total. If you are retired with several mill in the bank, buying $10k of iBonds does almost nothing for your portfolio. So no, not a no-brainer for many.
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Re: Are iBonds still a no-brainer?

Post by Johm221122 »

In 1999 when I was just starting out investing I invested in I Bonds over puting as much as I possibly could in my 401k. My 401k was matching dollar per dollar unlimited.
While I am not sad I bought those I Bonds it was a mistake.
I Bonds are definitely not a no brainer investment compared to say the match in your 401k.
Investment decisions should be based on your personal situation
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Re: Are iBonds still a no-brainer?

Post by 9-5 Suited »

Big Dog wrote: Mon Jan 09, 2023 10:14 am Depends on your age and assets total. If you are retired with several mill in the bank, buying $10k of iBonds does almost nothing for your portfolio. So no, not a no-brainer for many.
Not sure I agree, as someone who meets the criteria of your comment. A husband and wife can accumulate $400,000 in iBond basis alone over 20 years at current limits. That’s not insignificant at all if you like inflation protected bonds.
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Re: Are iBonds still a no-brainer?

Post by ruralavalon »

Rachel5590 wrote: Mon Jan 09, 2023 9:55 am I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
You have not provided enough information about your individual situation or portfolio to enable a reasonable response.
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Re: Are iBonds still a no-brainer?

Post by Kenkat »

If you didn’t put the money into iBonds, where would it go? The answer to this question will determine the answer to your question.
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Re: Are iBonds still a no-brainer?

Post by evelynmanley »

Food for thought:

I Bonds: A not-so-simple buying guide for 2023
Posted on January 3, 2023
By David Enna, Tipswatch.com

https://tipswatch.com/2023/01/03/i-bond ... -for-2023/
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Re: Are iBonds still a no-brainer?

Post by captain2012 »

9-5 Suited wrote: Mon Jan 09, 2023 10:11 am
captain2012 wrote: Mon Jan 09, 2023 10:01 am I'd wait until April to decide.

(Giving the trend of CPI, it's possible we would see I bond interest drops below 5% starting from May 2023 and even further in Nov 2023. On the other hand, Fed is showing no sign to lower interest rate until end of 2023 which means you could possibly lock in 4-5% interest for 3-5 more years on treasuries and CDs..)
Market timing interest rates is a futile effort, and focusing on the current semi-annual iBond rate is a pretty big error in thought process. You buy iBonds or TIPS for protection against future unexpected inflation, which can’t be known when you buy. It’s insurance.

The thing that really matters is the real rate being paid on the inflation protected bonds and how exposed the investor is to inflation risk. If the second answer is “high”, then the choice really comes down to TIPS or iBonds and which pays a better real rate (and liquidity needs and taxes).
I'd not agree, as this isn't about "Market timing interest rate". You would still get the same interest rate for buying I Bond in April.

For sure we cannot predict what inflation would in the future, we cannot predict interest rate either. However, the fact Fed is battling inflation, until they see inflation cools down enough, they will not lower interest rate, and we already saw inflation cooled down in past 3 months. That being said, we already started to see the possibility which I bond interest would run lower than the CD/BOND interest starting from May, so why rush to buy in I bond now but not to wait until April to decide? You would still earn 6 month of fixed rate in April which is not going to change.
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Re: Are iBonds still a no-brainer?

Post by samsoes »

Yes, definitely a no-brainer. Back up the truck and shovel them in!
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Re: Are iBonds still a no-brainer?

Post by Cosmo »

Johm221122 wrote: Mon Jan 09, 2023 10:19 am In 1999 when I was just starting out investing I invested in I Bonds over puting as much as I possibly could in my 401k. My 401k was matching dollar per dollar unlimited.
While I am not sad I bought those I Bonds it was a mistake.
I Bonds are definitely not a no brainer investment compared to say the match in your 401k.
Investment decisions should be based on your personal situation
I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake. I'm also curious as to how you purchased these within your 401k as well.

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Re: Are iBonds still a no-brainer?

Post by mix »

I'm waiting until April.
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

9-5 Suited wrote: Mon Jan 09, 2023 10:11 am Market timing interest rates is a futile effort, and focusing on the current semi-annual iBond rate is a pretty big error in thought process. You buy iBonds or TIPS for protection against future unexpected inflation, which can’t be known when you buy. It’s insurance.
That may be why you buy I bonds, but it's not why I bought I bonds last year. I bought them for the high nominal 6-month return, which we knew in advance, along with the expected fairly high return for the subsequent 6-month period. I fully intend to sell them as soon after the 1-year lockup as makes sense, depending on the alternatives at the time. I have no desire to have holdings at TD long term.

Per the TIPSwatch article:
Conclusion. If your only interest in I Bonds is a quick one-year investment, you might want to look at competitive nominal investments like one-year bank CDs, online savings accounts or one-year Treasury bills. If inflation moderates, the returns could be similar but without the three-month interest penalty. The advantage of an I Bond is long-term inflation protection. If you aren’t concerned about inflation in the long term, look elsewhere.
I would say even if you are looking for long-term inflation protection, look elsewhere, and that would be TIPS, which I have been buying, and plan to continue buying this year. I have been buying TIPS in IRAs and nominal Treasuries in taxable.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Are iBonds still a no-brainer?

Post by JoeRetire »

Rachel5590 wrote: Mon Jan 09, 2023 9:55 am I invested in iBonds for my spouce and I: 20k Dec 2021, 20k Jan 2022 and 10k just now 2023. I was going to invest another 10k but thought I should inquire first if there's any other similar investment I should consider.
I sold a batch of fully-matured EE Bonds last year.
So with the proceeds I purchased $20k of iBonds last year and $20k this year. I plan to do the same next year, and perhaps the following year as well.

For me, it is a no-brainer. Your mileage may vary.
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Re: Are iBonds still a no-brainer?

Post by climber2020 »

Cosmo wrote: Mon Jan 09, 2023 11:57 am I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake.
That money would have been better off in stocks. According to his post, he was "just starting out investing" which one would assume means that the time horizon is long.
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Re: Are iBonds still a no-brainer?

Post by Cosmo »

climber2020 wrote: Mon Jan 09, 2023 12:06 pm
Cosmo wrote: Mon Jan 09, 2023 11:57 am I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake.
That money would have been better off in stocks. According to his post, he was "just starting out investing" which one would assume means that the time horizon is long.
Of course, it would. That doesn't mean it is necessarily best to go 100% in stocks—even when just starting out.
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Re: Are iBonds still a no-brainer?

Post by climber2020 »

Cosmo wrote: Mon Jan 09, 2023 12:10 pm
climber2020 wrote: Mon Jan 09, 2023 12:06 pm
Cosmo wrote: Mon Jan 09, 2023 11:57 am I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake.
That money would have been better off in stocks. According to his post, he was "just starting out investing" which one would assume means that the time horizon is long.
Of course, it would. That doesn't mean it is necessarily best to go 100% in stocks—even when just starting out.
Considering he wasn't maxing out his 401k at the time, it probably still would have been best to buy a nominal bond fund inside the 401k with an unlimited dollar for dollar match. That's hard to beat.
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Re: Are iBonds still a no-brainer?

Post by 9-5 Suited »

Kevin M wrote: Mon Jan 09, 2023 12:00 pm That may be why you buy I bonds, but it's not why I bought I bonds last year. I bought them for the high nominal 6-month return, which we knew in advance, along with the expected fairly high return for the subsequent 6-month period. I fully intend to sell them as soon after the 1-year lockup as makes sense, depending on the alternatives at the time. I have no desire to have holdings at TD long term.
Fair enough that I shouldn’t have been so absolutist, but that puts you in what I have to imagine is a minority faction of micro-optimizers. What do you expect to make on the spread of iBonds vs CDs over a 12 month period? It can’t be more than about $300 annually per $10k invested. It’s a better guess that someone just starting out with a long horizon is going to keep them as a longer term holding than one year for the purpose of inflation protection (hence my current preference for the higher real rates of TIPS, assuming the accounts are tax deferred).
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

9-5 Suited wrote: Mon Jan 09, 2023 12:16 pm
Kevin M wrote: Mon Jan 09, 2023 12:00 pm That may be why you buy I bonds, but it's not why I bought I bonds last year. I bought them for the high nominal 6-month return, which we knew in advance, along with the expected fairly high return for the subsequent 6-month period. I fully intend to sell them as soon after the 1-year lockup as makes sense, depending on the alternatives at the time. I have no desire to have holdings at TD long term.
Fair enough that I shouldn’t have been so absolutist, but that puts you in what I have to imagine is a minority faction of micro-optimizers. What do you expect to make on the spread of iBonds vs CDs over a 12 month period? It can’t be more than about $300 annually per $10k invested. It’s a better guess that someone just starting out with a long horizon is going to keep them as a longer term holding than one year for the purpose of inflation protection (hence my current preference for the higher real rates of TIPS, assuming the accounts are tax deferred).
I recall there being quite a few folks sharing in the mega I bond thread that they were doing the same thing, and what's wrong with that? Between DW and me, we bought $70K, so using your figure, that would be more than $2K extra. For me, it was worth the minimal effort it took to do it.

A lifetime of micro-optimizations adds up. Looking at relatively small dollar amounts is a common criticism of looking for yield-advantage opportunities, but if I can eek out even a 1 percentage point advantage over many years, it makes a difference. I earned an average of about 115 basis points over Treasuries in direct CDs for about 10 years starting in 2010--that was a good run. I was earning about 40-50 basis points over Treasuries with box spreads last year, but decided it was too much work, and the yield spreads are not consistent enough. For now it's mainly Treasuries and TIPS.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Are iBonds still a no-brainer?

Post by toddthebod »

Cosmo wrote: Mon Jan 09, 2023 11:57 am
Johm221122 wrote: Mon Jan 09, 2023 10:19 am In 1999 when I was just starting out investing I invested in I Bonds over puting as much as I possibly could in my 401k. My 401k was matching dollar per dollar unlimited.
While I am not sad I bought those I Bonds it was a mistake.
I Bonds are definitely not a no brainer investment compared to say the match in your 401k.
Investment decisions should be based on your personal situation
I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake. I'm also curious as to how you purchased these within your 401k as well.

Cosmo
$1 in the first issue I bonds in 1998 is worth $4.32 today. $1 contributed to his 401(k) and invested in the S&P 500 at the same time would be worth over $12 today. That's what he means.

To OP, I think you have to decide what your goal is for this investment. Short term there are some nominal investments that may have higher returns given the recent lull in inflation and the 3-month penalty. Long-term you will most likely end up ahead with TIPs if you hold to maturity.
Last edited by toddthebod on Mon Jan 09, 2023 12:46 pm, edited 1 time in total.
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Re: Are iBonds still a no-brainer?

Post by lakpr »

toddthebod wrote: Mon Jan 09, 2023 12:41 pm $1 in the first issue I bonds in 1998 is worth $4.32 today. $1 contributed to his 401(k) and invested in the S&P 500 at the same time would be worth over $12 today. That's what he means.
First off, disclaimer - I really have no dog in this fight.

But the person who invested that $1 in I-bonds in 1998 slept soundly through 2010, whereas the person who invested that $1 in S&P 500 was still in the red at the end of 2010.

It is just the last 12 years, starting in late 2009, that the bull really took off.
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Re: Are iBonds still a no-brainer?

Post by toddthebod »

lakpr wrote: Mon Jan 09, 2023 12:45 pm
toddthebod wrote: Mon Jan 09, 2023 12:41 pm $1 in the first issue I bonds in 1998 is worth $4.32 today. $1 contributed to his 401(k) and invested in the S&P 500 at the same time would be worth over $12 today. That's what he means.
First off, disclaimer - I really have no dog in this fight.

But the person who invested that $1 in I-bonds in 1998 slept soundly through 2010, whereas the person who invested that $1 in S&P 500 was still in the red at the end of 2010.

It is just the last 12 years, starting in late 2009, that the bull really took off.
Given he forwent a 1:1 match, he would still have been up 100% in 2009.
Backtests without cash flows are meaningless. Returns without dividends are lies.
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Re: Are iBonds still a no-brainer?

Post by Johm221122 »

Cosmo wrote: Mon Jan 09, 2023 11:57 am
Johm221122 wrote: Mon Jan 09, 2023 10:19 am In 1999 when I was just starting out investing I invested in I Bonds over puting as much as I possibly could in my 401k. My 401k was matching dollar per dollar unlimited.
While I am not sad I bought those I Bonds it was a mistake.
I Bonds are definitely not a no brainer investment compared to say the match in your 401k.
Investment decisions should be based on your personal situation
I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake. I'm also curious as to how you purchased these within your 401k as well.

Cosmo
You missed the part of 100% match in 401k unlimited My plan had. So yes in my case it was mistake
That is why I made the statement investment decision should be based on your personal situation and in my personal situation it was a mistake
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Re: Are iBonds still a no-brainer?

Post by Johm221122 »

toddthebod wrote: Mon Jan 09, 2023 12:41 pm
Cosmo wrote: Mon Jan 09, 2023 11:57 am
Johm221122 wrote: Mon Jan 09, 2023 10:19 am In 1999 when I was just starting out investing I invested in I Bonds over puting as much as I possibly could in my 401k. My 401k was matching dollar per dollar unlimited.
While I am not sad I bought those I Bonds it was a mistake.
I Bonds are definitely not a no brainer investment compared to say the match in your 401k.
Investment decisions should be based on your personal situation
I think you are possibly the only person who thinks buying iBonds in the late 90s, with a fixed rate of 3%+ was a mistake. I'm also curious as to how you purchased these within your 401k as well.

Cosmo
$1 in the first issue I bonds in 1998 is worth $4.32 today. $1 contributed to his 401(k) and invested in the S&P 500 at the same time would be worth over $12 today. That's what he means.

To OP, I think you have to decide what your goal is for this investment. Short term there are some nominal investments that may have higher returns given the recent lull in inflation and the 3-month penalty. Long-term you will most likely end up ahead with TIPs if you hold to maturity.
And then add the dollar for dollar match and the fact that being a lower tax rate in retirement.

This was 1999 a long time ago, I was a kid. But I bonds have been my emergency fund this whole time and I'm not sad because it makes a great emergency fund with the fixed rate. But it was still a mistake because a dollar per dollar match should never be not taking advantage of
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Re: Are iBonds still a no-brainer?

Post by abc132 »

I-Bonds are going to be a good choice as compared to having too much money in bank accounts. The key features are inflation protection, no price volatility, and the ability to defer interest in taxable space to a later date. The period 0-10 years before retirement can really take advantage of both of these features.

If you are looking out further than 10 years the something like +1% TIPS may make more sense.

I would say that I-Bonds are still a useful tool but no longer a no-brainer.
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Re: Are iBonds still a no-brainer?

Post by lakpr »

toddthebod wrote: Mon Jan 09, 2023 12:47 pm Given he forwent a 1:1 match, he would still have been up 100% in 2009.
Missed that. Yes, the free money should never have been given up. I also see @Johm221122 acknowledging it as well.
Last edited by lakpr on Mon Jan 09, 2023 1:27 pm, edited 1 time in total.
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Re: Are iBonds still a no-brainer?

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9-5 Suited wrote: Mon Jan 09, 2023 10:31 am
Big Dog wrote: Mon Jan 09, 2023 10:14 am Depends on your age and assets total. If you are retired with several mill in the bank, buying $10k of iBonds does almost nothing for your portfolio. So no, not a no-brainer for many.
Not sure I agree, as someone who meets the criteria of your comment. A husband and wife can accumulate $400,000 in iBond basis alone over 20 years at current limits. That’s not insignificant at all if you like inflation protected bonds.
Meanwhile, your xx mill in equities might have increased 2x. Moreover, that amount of bonds great for your heirs, but if that is the idea, isn't it better to go all-in on equities in a Roth so they can inherit tax-free?
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Re: Are iBonds still a no-brainer?

Post by Johm221122 »

lakpr wrote: Mon Jan 09, 2023 1:26 pm
toddthebod wrote: Mon Jan 09, 2023 12:47 pm Given he forwent a 1:1 match, he would still have been up 100% in 2009.
Missed that. Yes, the free money should never have been given up. I also see @Johm221122 acknowledging it as well.
And the tax savings. I would have had 15% more in the 401k and I'm planning on paying lower than 15% effective in retirement.
It was a mistake even though I Bonds were paying that much of a fixed rate.
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

abc132 wrote: Mon Jan 09, 2023 12:56 pm I-Bonds are going to be a good choice as compared to having too much money in bank accounts. The key features are inflation protection, no price volatility, and the ability to defer interest in taxable space to a later date. The period 0-10 years before retirement can really take advantage of both of these features.

If you are looking out further than 10 years the something like +1% TIPS may make more sense.

I would say that I-Bonds are still a useful tool but no longer a no-brainer.
Shorter-term TIPS yields are higher than longer term. The Jan 2024 yield now is 2.95%. Even in taxable, it's likely that this will beat I bonds at 0.4%.

Jan 2025: 2.22%
Jan 2026: 1.85%
etc.

I have bought a lot of shorter-term TIPS in the last 9 months.
If I make a calculation error, #Cruncher probably will let me know.
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Re: Are iBonds still a no-brainer?

Post by JiggsJazzCar »

Big Dog wrote: Mon Jan 09, 2023 1:27 pm
9-5 Suited wrote: Mon Jan 09, 2023 10:31 am
Big Dog wrote: Mon Jan 09, 2023 10:14 am Depends on your age and assets total. If you are retired with several mill in the bank, buying $10k of iBonds does almost nothing for your portfolio. So no, not a no-brainer for many.
Not sure I agree, as someone who meets the criteria of your comment. A husband and wife can accumulate $400,000 in iBond basis alone over 20 years at current limits. That’s not insignificant at all if you like inflation protected bonds.
Meanwhile, your xx mill in equities might have increased 2x. Moreover, that amount of bonds great for your heirs, but if that is the idea, isn't it better to go all-in on equities in a Roth so they can inherit tax-free?
I feel like there is something to be said for not having your money in a bunch of different accounts. I would rather have all my money with one institution than chase the best rate. Even if 9% on $10,000 is appealing it doesn't really move the needle a ton.
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Re: Are iBonds still a no-brainer?

Post by JoMoney »

Kevin M wrote: Mon Jan 09, 2023 2:42 pm
abc132 wrote: Mon Jan 09, 2023 12:56 pm I-Bonds are going to be a good choice as compared to having too much money in bank accounts. The key features are inflation protection, no price volatility, and the ability to defer interest in taxable space to a later date. The period 0-10 years before retirement can really take advantage of both of these features.

If you are looking out further than 10 years the something like +1% TIPS may make more sense.

I would say that I-Bonds are still a useful tool but no longer a no-brainer.
Shorter-term TIPS yields are higher than longer term. The Jan 2024 yield now is 2.95%. Even in taxable, it's likely that this will beat I bonds at 0.4%.

Jan 2025: 2.22%
Jan 2026: 1.85%
etc.

I have bought a lot of shorter-term TIPS in the last 9 months.
Unless inflation goes negative, isn't it otherwise 'guaranteed' TIPS held to maturity will beat the I bond rate over that time period ?
Making the issue more about "reinvestment risk" on whether or not you'll be able to reinvest those bonds after they've matured at a rate in the future higher than the current I bond fixed rate ... ? ...
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
z3r0c00l
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Re: Are iBonds still a no-brainer?

Post by z3r0c00l »

Find me another zero volatility investment guaranteed to match inflation that is fully liquid in increments of $25 after 1 year and has no EWP after 5. If $10,000 a year is a significant amount of money for you this is an excellent option for your bond fund and/or emergency fund.

I don't think TIPs are necessarily suitable for an emergency fund, and the caveat of "if held to maturity" on a 20 year bond is a pretty big "if" for lots of uses. If held for 20 years, I bet stocks will beat TIPs over that time frame. I doubt being locked into a bond for that long is a right for most people. Shorter term TIPS are great for now, but interest rates can change. The I bond guarantee lasts 30 years, no need to agonize every 5 years about where you are putting money next.
Last edited by z3r0c00l on Tue Jan 10, 2023 9:27 am, edited 1 time in total.
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JoMoney
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Re: Are iBonds still a no-brainer?

Post by JoMoney »

FWIW, I'm going to nit-pick that "iBonds" is a trademark product of iShares, and while it is pretty common usage to refer to Series I Savings Bonds as " I Bonds ", it should be differentiated that there are different securities out there using that term, and might require disambiguation. Shame on iShares, which should have known better with regard to the prior common use of term "I Bonds" to refer to U.S. Savings bonds.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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Re: Are iBonds still a no-brainer?

Post by yolointopants »

10,000 invested in I bonds is, in my mind, a zero stress investment. I know it will return the rate of inflation, and the .4% fixed rate I got last November gives me a guaranteed real return.

I max out my deferred comp, I max out my backdoor Roth. I have money left over so it goes into I Bonds over taxable. For my income, I don't have a huge amount left over after doing all those so it's going to be a nice chunk of predictability in retirement.

In a few years I can add catch up contributions to my deferred comp. I will do that first before the I Bonds.

An investment with a guaranteed real rate of return that I don't have to worry about, that's worth a lot to me.
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Re: Are iBonds still a no-brainer?

Post by mall0c »

Do you hold any cash equivalents? In my 15 years of holding i-bonds they have never paid less than the best cash equivalent options, and in addition they have tax advantages and inflation protection. So yes, they are a no-brainer (if you hold any cash). If you are 100% equities with no emergency fund then maybe they are not for you.
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Re: Are iBonds still a no-brainer?

Post by z3r0c00l »

mall0c wrote: Tue Jan 10, 2023 10:04 am Do you hold any cash equivalents? In my 15 years of holding i-bonds they have never paid less than the best cash equivalent options,
There were 2 6-month periods that paid nothing due to deflation. I remember not loving that when even a bank account did do better.
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Re: Are iBonds still a no-brainer?

Post by Tom_T »

z3r0c00l wrote: Tue Jan 10, 2023 10:08 am
mall0c wrote: Tue Jan 10, 2023 10:04 am Do you hold any cash equivalents? In my 15 years of holding i-bonds they have never paid less than the best cash equivalent options,
There were 2 6-month periods that paid nothing due to deflation. I remember not loving that when even a bank account did do better.
I'm not too worried about deflation. I say that after 40 years of investing.
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Re: Are iBonds still a no-brainer?

Post by andypanda »

"If you didn’t put the money into iBonds, where would it go?"

I like iBonds. I can tell my wife the money is tied up.

Where would it go? -

Does my new 2018 wife have two grandsons - 3 and 7 - and a son and a daughter in law? Yes.
Would she say, "We have too much money, let's give some more to them." Yes, she would. :)
Would she say, "They need more furniture for the house we gave them the down payment for."? Yes again. (They sorely needed to get out of their starter home and then the real estate market went crazy around here.)

I'm guilty too, but I only buy them useful tools to keep the house running. :) A Weber Genesis II gas grill and a two-piece rolling Craftsman tool chest are necessary for the functioning of a household.
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Re: Are iBonds still a no-brainer?

Post by Luckywon »

Not a no brainer for me because:
- They were not on my radar (out of ignorance) until couple years ago and at this point the complexity of adding this type of asset, and me and my heirs having to deal with the government, is not appealing.
- My understanding is I, or my heirs, will eventually have to pay income tax on all income from ibonds. For me, the alternative, i.e. investing in equities, will likely result much less tax as I likely will not sell them before I die, at which time my heirs will get a step up in cost basis.
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Re: Are iBonds still a no-brainer?

Post by JiggsJazzCar »

Luckywon wrote: Tue Jan 10, 2023 10:56 am
Exactly! Why make things more complicated if you are already secure in what you have?

I do see the benefit of I Bonds of course, I just don't see a need for them in my personal portfolio.
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Kevin M
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Re: Are iBonds still a no-brainer?

Post by Kevin M »

JoMoney wrote: Tue Jan 10, 2023 9:17 am
Kevin M wrote: Mon Jan 09, 2023 2:42 pm
abc132 wrote: Mon Jan 09, 2023 12:56 pm I-Bonds are going to be a good choice as compared to having too much money in bank accounts. The key features are inflation protection, no price volatility, and the ability to defer interest in taxable space to a later date. The period 0-10 years before retirement can really take advantage of both of these features.

If you are looking out further than 10 years the something like +1% TIPS may make more sense.

I would say that I-Bonds are still a useful tool but no longer a no-brainer.
Shorter-term TIPS yields are higher than longer term. The Jan 2024 yield now is 2.95%. Even in taxable, it's likely that this will beat I bonds at 0.4%.

Jan 2025: 2.22%
Jan 2026: 1.85%
etc.

I have bought a lot of shorter-term TIPS in the last 9 months.
Unless inflation goes negative, isn't it otherwise 'guaranteed' TIPS held to maturity will beat the I bond rate over that time period ?
Making the issue more about "reinvestment risk" on whether or not you'll be able to reinvest those bonds after they've matured at a rate in the future higher than the current I bond fixed rate ... ? ...
There are two possible issues: taxes and the different inflation adjustment methods.

In a taxable account, the tax deferral on I bonds is worth something, but of course depends on each person's tax situation. Someone else can gin up examples if they want (has been done in other threads), but I think at about 2% or more, it will be tough for I bonds at 0.4% to come out ahead.

However, due to the different inflation adjustment methodologies, one or the other could do better depending on inflation.

Reinvestment risk is definitely a factor in staying short-term with TIPS.
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Re: Are iBonds still a no-brainer?

Post by Doom&Gloom »

andypanda wrote: Tue Jan 10, 2023 10:43 am "If you didn’t put the money into iBonds, where would it go?"

I like iBonds. I can tell my wife the money is tied up.

Where would it go? -

Does my new 2018 wife have two grandsons - 3 and 7 - and a son and a daughter in law? Yes.
Would she say, "We have too much money, let's give some more to them." Yes, she would. :)
Would she say, "They need more furniture for the house we gave them the down payment for."? Yes again. (They sorely needed to get out of their starter home and then the real estate market went crazy around here.)

I'm guilty too, but I only buy them useful tools to keep the house running. :) A Weber Genesis II gas grill and a two-piece rolling Craftsman tool chest are necessary for the functioning of a household.
LOL! I hear you!

If one reads the I Bond mega-thread, even when I Bonds seemed to be a no-brainer they weren't a no-brainer.
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Re: Are iBonds still a no-brainer?

Post by jhawktx »

I-bonds are definitely NOT a no brainer and I can prove that. I own no I-bonds. Yet, I have a brain.
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Re: Are iBonds still a no-brainer?

Post by abc132 »

Kevin M wrote: Mon Jan 09, 2023 2:42 pm
abc132 wrote: Mon Jan 09, 2023 12:56 pm I-Bonds are going to be a good choice as compared to having too much money in bank accounts. The key features are inflation protection, no price volatility, and the ability to defer interest in taxable space to a later date. The period 0-10 years before retirement can really take advantage of both of these features.

If you are looking out further than 10 years the something like +1% TIPS may make more sense.

I would say that I-Bonds are still a useful tool but no longer a no-brainer.
Shorter-term TIPS yields are higher than longer term. The Jan 2024 yield now is 2.95%. Even in taxable, it's likely that this will beat I bonds at 0.4%.

Jan 2025: 2.22%
Jan 2026: 1.85%
etc.

I have bought a lot of shorter-term TIPS in the last 9 months.
Delaying all of my interest in taxable to non-working years is more beneficial. With I-Bonds I do not have to be concerned about reinvestment risk with TIPS rate in Jan 2024 if I don't need to spend the money. I believe I gain a bigger differential than you by doing the opposite, so again it depends.
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Re: Are iBonds still a no-brainer?

Post by Broken Man 1999 »

For my particular situation I-bonds are still a no-brainer. I'm not buying these I-bonds for our retirement portfolio, I am buying them for our grandchildren.

I'm getting $10,000/year out of my TIRA and have our grandchildren as beneficiaries on the I-bonds.

Savings bonds are easier for my young, non-financially astute family members to understand than TIPS. If I live long enough that might change as my grandchildren age and learn about financial things. Hopefully when they have are a bit older my brain is still working and I can teach them some things about more complex investments, including TIPS.

About 20% of our retirement bond holdings are the 2000-2001 I-bonds that pay up to 3.6% fixed + inflation adjustment for almost another decade. So for now I won't buy any TIPS for our retirement portfolio.

Broken Man 1999
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