anybody sell I Bonds to buy something else?

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feh
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anybody sell I Bonds to buy something else?

Post by feh » Wed Oct 10, 2018 10:30 am

Hi folks.

For the last few years, I've been buying my annual limit of I Bonds. I consider them a 2nd tier emergency fund; don't plan on really selling them unless absolutely necessary.

I'm rethinking that approach, given the recent increases in interest rates. I could use those funds and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.

Thanks.

moehoward
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Re: anybody sell I Bonds to buy something else?

Post by moehoward » Wed Oct 10, 2018 10:33 am

feh wrote:
Wed Oct 10, 2018 10:30 am
Hi folks.

For the last few years, I've been buying my annual limit of I Bonds. I consider them a 2nd tier emergency fund; don't plan on really selling them unless absolutely necessary.

I'm rethinking that approach, given the recent increases in interest rates. I could use those funds and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.

Thanks.
No I haven't . iBonds are my 1st tier emergency fund

donaldfair71
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Re: anybody sell I Bonds to buy something else?

Post by donaldfair71 » Wed Oct 10, 2018 11:02 am

moehoward wrote:
Wed Oct 10, 2018 10:33 am
feh wrote:
Wed Oct 10, 2018 10:30 am
Hi folks.

For the last few years, I've been buying my annual limit of I Bonds. I consider them a 2nd tier emergency fund; don't plan on really selling them unless absolutely necessary.

I'm rethinking that approach, given the recent increases in interest rates. I could use those funds and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.

Thanks.
No I haven't . iBonds are my 1st tier emergency fund
Same here.

Could I get better yield out there? Yup. Probably 50 bps minimum on average. Would it add another layer of complexity to my overall financial picture? Yup. The trade off to me isn't worth it. But if one thought it to be worth it, I wouldn't begrudge them.

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VictoriaF
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Re: anybody sell I Bonds to buy something else?

Post by VictoriaF » Wed Oct 10, 2018 11:05 am

You don't buy I Bonds for their earnings. You buy them for protection from inflation.

Victoria
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Mel Lindauer
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Re: anybody sell I Bonds to buy something else?

Post by Mel Lindauer » Wed Oct 10, 2018 11:09 am

VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.

Victoria
Bingo!
Best Regards - Mel | | Semper Fi

feh
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Re: anybody sell I Bonds to buy something else?

Post by feh » Wed Oct 10, 2018 11:54 am

VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.

Victoria
I think you buy them for both reasons.

Unfortunately, you can't buy enough of them (at least I can't) to adequately protect our portfolio from inflation, due to the annual limits. For that reason, we also own a TIPS fund.

mpnret
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Re: anybody sell I Bonds to buy something else?

Post by mpnret » Wed Oct 10, 2018 12:00 pm

My I bonds have been paying close to 6% for over 20 years now. When they start maturing soon and I have to cash in I will most likely buy more. With today's purchase limits I will get nowhere near what I have now (high 6 figures). May add some treasuries or whatever.

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Re: anybody sell I Bonds to buy something else?

Post by Jack FFR1846 » Wed Oct 10, 2018 12:09 pm

Back in the olden days, when one could buy $30k per person per year online with a credit card for no fee and they could be redeemed in 6 months, I'd regularly sell them to pay for the new ones I bought to get airline miles to upgrade the entire family to first class going to Aruba.

I've also sold to pay for school tuition.

I seem to remember selling to pay for a used 2007 Ford Explorer some time ago.

Since paper bonds have stopped, I only buy with federal refund money. I don't do e bonds with treasury direct.
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Re: anybody sell I Bonds to buy something else?

Post by 92irish » Wed Oct 10, 2018 12:19 pm

I have some zero percent I bonds that are not looking so attractive anymore. I may very well unload some of them. My others I-bonds with fixed rates of 3% and north, I will hold until maturity for sure.

5-year TIPS are now 1% + inflation. Nominal bonds/CDs are also sporting better and more competitive yields.

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Re: anybody sell I Bonds to buy something else?

Post by ishkadetto » Wed Oct 10, 2018 12:32 pm

feh wrote:
Wed Oct 10, 2018 10:30 am
For the last few years, I've been buying my annual limit of I Bonds. I consider them a 2nd tier emergency fund; don't plan on really selling them unless absolutely necessary.

I'm rethinking that approach, given the recent increases in interest rates. I could use those funds and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.
I only have 10k worth and they are at the 0.1% interest rate, so I think I will sell them if only for simplification to get rid of the Treasury Direct account. I do like the idea of inflation protection and if I had ones with better rates from long ago I would certainly keep them. I just don't know if its worth it right now :?

Edit: Also I have access to the G Fund which I feel gives me inflation protection, so the extra 10k in I bonds is negligible. I think I just convinced myself to sell them next month :D
Last edited by ishkadetto on Wed Oct 10, 2018 12:56 pm, edited 1 time in total.

Da5id
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Re: anybody sell I Bonds to buy something else?

Post by Da5id » Wed Oct 10, 2018 12:44 pm

I'm considering it. I have about 24K of them. As a percentage of portfolio, not particularly relevant. So the inflation protection aspect isn't really all that significant. Feels murky to me whether they are worthwhile, particularly with 0.0% and 0.1% fixed rate. Thinking life might be simpler without them.

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Re: anybody sell I Bonds to buy something else?

Post by smectym » Thu Oct 11, 2018 1:22 am

Jack FFR1846 wrote:
Wed Oct 10, 2018 12:09 pm
Back in the olden days, when one could buy $30k per person per year online with a credit card for no fee and they could be redeemed in 6 months, I'd regularly sell them to pay for the new ones I bought to get airline miles to upgrade the entire family to first class going to Aruba.

I've also sold to pay for school tuition.

I seem to remember selling to pay for a used 2007 Ford Explorer some time ago.

Since paper bonds have stopped, I only buy with federal refund money. I don't do e bonds with treasury direct.
We too bought our share “back in the olden days.” The series EE bonds are approaching their doubling guarantee next year: We’ll cash those in gradually over the next several years to smooth out the tax hit.

Most of the I bonds are earning interest rates too rich to cash out, though there are a few dogs and we are gradually redeeming those.

Overall, savings bonds have been “OK” for us. Without the crisis and the ensuing unforeseeable, world-historic period of financial repression, results would have been much better. But the whole story hasn’t yet been written: rates are picking up now.

Smectym

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Re: anybody sell I Bonds to buy something else?

Post by dcabler » Thu Oct 11, 2018 6:43 am

I have both of TIPs and Ibonds. Inflation protection. In fact, they're earmarked to be withdrawn from starting at age 70 as a supplement to SS. The rest of the portfolio is to bridge between when I retire and age 70 and for any extras on top of SS+Ibonds/TIPs since SS + Ibonds/TIPs will just about cover basic spending needs.

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Re: anybody sell I Bonds to buy something else?

Post by wassabi » Thu Oct 11, 2018 6:57 am

ishkadetto wrote:
Wed Oct 10, 2018 12:32 pm

Edit: Also I have access to the G Fund which I feel gives me inflation protection, so the extra 10k in I bonds is negligible. I think I just convinced myself to sell them next month :D

Interesting. How does the G Fund protect against inflation?

ishkadetto
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Re: anybody sell I Bonds to buy something else?

Post by ishkadetto » Thu Oct 11, 2018 9:54 am

wassabi wrote:
Thu Oct 11, 2018 6:57 am
How does the G Fund protect against inflation?
According to the wiki:
TSP participants are offered inflation protection via the G Fund. As yields of nominal U.S. Treasury securities generally reflect expected inflation plus a real return component, if inflation increases or is expected to increase, the yields of Treasuries are expected to increase; and the G Fund’s yield should increase as well.
and
Just like nominal bonds, G fund will outpace inflation during periods of expected inflation, and disinflation/deflation. However, unlike nominal bonds, G fund does not lose value in a rising rate (rising inflation) environment. The G fund yields will start averaging up every month as new nominal treasuries are issued with the new inflation estimates in their returns. However, there may be a period where inflation outpaces G fund returns.

Over a long observation period, the G fund is expected to outpace the growth of inflation. The premiums returned over inflation during periods of expected inflation and unexpected disinflation, compensate for the possible lagging returns when inflation is unexpected.

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villars
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Re: anybody sell I Bonds to buy something else?

Post by villars » Thu Oct 11, 2018 10:23 am

No. I would have to pay tax on the interest accrued so far. And I would not have the chance to buy them back.

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Re: anybody sell I Bonds to buy something else?

Post by AlmstRtrd » Thu Oct 11, 2018 10:34 am

villars wrote:
Thu Oct 11, 2018 10:23 am
No. I would have to pay tax on the interest accrued so far. And I would not have the chance to buy them back.
Right, OP, don't forget the tax implications. Not sure if those are significant for you or not. Remember too the tax-deferred nature of I-Bonds. In addition to a little inflation protection, they also offer some deflation protection as they can't go negative.

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Re: anybody sell I Bonds to buy something else?

Post by ivk5 » Thu Oct 11, 2018 10:54 am

smectym wrote:
Thu Oct 11, 2018 1:22 am
Jack FFR1846 wrote:
Wed Oct 10, 2018 12:09 pm
Back in the olden days, when one could buy $30k per person per year online with a credit card for no fee and they could be redeemed in 6 months, I'd regularly sell them to pay for the new ones I bought to get airline miles to upgrade the entire family to first class going to Aruba.

I've also sold to pay for school tuition.

I seem to remember selling to pay for a used 2007 Ford Explorer some time ago.

Since paper bonds have stopped, I only buy with federal refund money. I don't do e bonds with treasury direct.
We too bought our share “back in the olden days.” The series EE bonds are approaching their doubling guarantee next year: We’ll cash those in gradually over the next several years to smooth out the tax hit.
I believe taxes are due in year of maturity whether you cash them in or not.

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Re: anybody sell I Bonds to buy something else?

Post by AlmstRtrd » Thu Oct 11, 2018 11:05 am

ivk5 wrote:
Thu Oct 11, 2018 10:54 am
smectym wrote:
Thu Oct 11, 2018 1:22 am
Jack FFR1846 wrote:
Wed Oct 10, 2018 12:09 pm
Back in the olden days, when one could buy $30k per person per year online with a credit card for no fee and they could be redeemed in 6 months, I'd regularly sell them to pay for the new ones I bought to get airline miles to upgrade the entire family to first class going to Aruba.

I've also sold to pay for school tuition.

I seem to remember selling to pay for a used 2007 Ford Explorer some time ago.

Since paper bonds have stopped, I only buy with federal refund money. I don't do e bonds with treasury direct.
We too bought our share “back in the olden days.” The series EE bonds are approaching their doubling guarantee next year: We’ll cash those in gradually over the next several years to smooth out the tax hit.
I believe taxes are due in year of maturity whether you cash them in or not.
That is true. Taxes due in year of maturity. If one wants to smooth out the tax hit from bonds maturing in 2019, one has to start redeeming before the end of 2018. And pay attention to the accrual dates on the EE Bonds. I believe they only accrue interest semi-annually as opposed to I Bonds which accrue monthly.

feh
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Re: anybody sell I Bonds to buy something else?

Post by feh » Thu Oct 11, 2018 11:24 am

AlmstRtrd wrote:
Thu Oct 11, 2018 11:05 am

That is true. Taxes due in year of maturity. If one wants to smooth out the tax hit from bonds maturing in 2019, one has to start redeeming before the end of 2018. And pay attention to the accrual dates on the EE Bonds. I believe they only accrue interest semi-annually as opposed to I Bonds which accrue monthly.
I don't know about EE bonds, but I'm fairly certain you can pay taxes on I bond interest as it accrues. Redemption is not required.

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Re: anybody sell I Bonds to buy something else?

Post by beardsworth » Thu Oct 11, 2018 11:33 am

feh wrote:
Wed Oct 10, 2018 10:30 am
I'm rethinking that approach, given the recent increases in interest rates. I could use those funds [proceeds from redeemed I Bonds] and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.
VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.
Exactly.

CDs, depending on the chosen maturity, will pay you a fixed interest rate for 1, 2, 5, years, and then have to bought again if you still want to own CDs. Short-term bond funds have a changing internal portfolio but a relatively constant average maturity, typically 2–3 years.

By contrast, an I Bond will pay you tax-deferred CPI-indexed interest for up to 30 years.

There may, of course, be a place for all of these in any particular individual's overall portfolio, but I wouldn't cash I Bonds for purposes of buying either of the alternatives listed above, especially when it takes a while to accumulate a really meaningful "stash" of I Bonds under the current annual purchase limits.

ivk5
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Re: anybody sell I Bonds to buy something else?

Post by ivk5 » Thu Oct 11, 2018 11:58 am

feh wrote:
Thu Oct 11, 2018 11:24 am
AlmstRtrd wrote:
Thu Oct 11, 2018 11:05 am

That is true. Taxes due in year of maturity. If one wants to smooth out the tax hit from bonds maturing in 2019, one has to start redeeming before the end of 2018. And pay attention to the accrual dates on the EE Bonds. I believe they only accrue interest semi-annually as opposed to I Bonds which accrue monthly.
I don't know about EE bonds, but I'm fairly certain you can pay taxes on I bond interest as it accrues. Redemption is not required.
Right but the point here was the inverse. You cannot defer taxes beyond maturity simply by deferring redemption.

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Re: anybody sell I Bonds to buy something else?

Post by dratkinson » Thu Oct 11, 2018 1:01 pm

Got on a simplification + tax-efficiency kick in 2015. (Forum had recently discussed ways to simplify our investments/lives prior to the onset of old age mental decline.)


Adopted livesoft's idea to increase tax-efficiency. What? Get rid of investments that produce Sch B part I income. Why? Taxed as ordinary dividends. Savings bond interest and dividends from my individual stock are reported on Sch B part I, and taxed as ordinary dividends on fed tax return. (Okay, savings bond interest did earn break on state tax return: <5%.)


Sold all savings bonds, researched and bought single-state muni. Why? Muni had...
--Better tax advantages: fed + state.
--Better SEC yield + tax advantages, so produce higher after-tax income.
--No annual contribution limit, so are refillable.
--Mailed paper statements and transaction confirmations, so more transparency for heirs/me.
--Doesn't require monthly login to get investment total.

Yes, a muni's price does fluctuate. I'm planning a TLH this year.


Sold remaining individual stock (MetLife demutualization), bought single-state munis.
--Needed more bonds anyway.


Closed two accounts and paid taxes while still competent to do so: TD and brokerage.


Now use VWIUX (IT national muni fund) as last/largest tier of my formal EFs, home projects, new car, and dry powder fund.
Last edited by dratkinson on Sat Oct 13, 2018 3:40 am, edited 1 time in total.
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J295
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Re: anybody sell I Bonds to buy something else?

Post by J295 » Thu Oct 11, 2018 7:48 pm

No. We bought them to keep them as part of our non-equity portfolio.

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Mursili
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Re: anybody sell I Bonds to buy something else?

Post by Mursili » Thu Oct 11, 2018 9:56 pm

I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
When it comes to havoc, no one wreaks like me! - Dr. Heinz Doofenshmirtz

feh
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Re: anybody sell I Bonds to buy something else?

Post by feh » Fri Oct 12, 2018 8:02 am

Mursili wrote:
Thu Oct 11, 2018 9:56 pm
I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
Just FYI - the interest is no longer tax free when used for education.

ivk5
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Re: anybody sell I Bonds to buy something else?

Post by ivk5 » Fri Oct 12, 2018 8:07 am

feh wrote:
Fri Oct 12, 2018 8:02 am
Mursili wrote:
Thu Oct 11, 2018 9:56 pm
I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
Just FYI - the interest is no longer tax free when used for education.
Source? I was not aware that the Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 (Form 8815) was modified by the Tax Cuts and Jobs Act (TCJA) or any other recent legislation.

(Of course there are income phaseouts but that is not new.)

feh
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Re: anybody sell I Bonds to buy something else?

Post by feh » Fri Oct 12, 2018 8:22 am

ivk5 wrote:
Fri Oct 12, 2018 8:07 am
feh wrote:
Fri Oct 12, 2018 8:02 am
Mursili wrote:
Thu Oct 11, 2018 9:56 pm
I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
Just FYI - the interest is no longer tax free when used for education.
Source? I was not aware that the Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 (Form 8815) was modified by the Tax Cuts and Jobs Act (TCJA) or any other recent legislation.

(Of course there are income phaseouts but that is not new.)
I think I was wrong - I did some googling and it appears this provision was in one version of the bill, but was not in the final version which passed.

Mea culpa.

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hand
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Re: anybody sell I Bonds to buy something else?

Post by hand » Fri Oct 12, 2018 9:21 am

VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.

Victoria
And protection from deflation!

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Re: anybody sell I Bonds to buy something else?

Post by z3r0c00l » Fri Oct 12, 2018 9:30 am

Not yet, they are the bulk of my emergency fund too and now also serving as part of savings to buy a home. (The worst i-bonds over 5 years old will get pushed out when buying a home.) It may be that you can better CD rates now, but you can't get the inflation protection guarantee elsewhere.

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Re: anybody sell I Bonds to buy something else?

Post by Darth Xanadu » Fri Oct 12, 2018 10:00 am

Mursili wrote:
Thu Oct 11, 2018 9:56 pm
I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
Same. I'm building my I-Bonds now, and the purpose of this part of my portfolio is fluid. For the next number of years, this will serve as 2nd tier emergency fund. Eventually, if my kid goes to college, I will likely use the I-Bonds to supplement 529 savings to pay for education. If I don't liquidate for emergencies, and don't need to use it for education, it will serve as a bridge between retirement and Social Security.
"A courageous teacher, failure is."

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Re: anybody sell I Bonds to buy something else?

Post by donaldfair71 » Fri Oct 12, 2018 11:18 am

Mursili wrote:
Thu Oct 11, 2018 9:56 pm
I think that there is a good chance that I will sell some/all to buy college educations for my kids over the course of the next few years.
Remember, too, that you can roll these into 529s tax free (sell the bond, put proceeds into a 529 immediately). If you don't live in a state with a tax, or one that doesn't give 529 breaks, then it doesn't make sense to do so. But for some, like me in Va, it's a double dip: You don't pay tax on the I Bond gain AND I get the 529 contribution write-off.

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Re: anybody sell I Bonds to buy something else?

Post by Mel Lindauer » Fri Oct 12, 2018 2:21 pm

hand wrote:
Fri Oct 12, 2018 9:21 am
VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.

Victoria
And protection from deflation!
That's true. And the greater the deflation, the higher the I Bond real return.
Best Regards - Mel | | Semper Fi

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Mursili
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Re: anybody sell I Bonds to buy something else?

Post by Mursili » Sat Oct 13, 2018 12:14 am

donaldfair71 wrote:
Fri Oct 12, 2018 11:18 am
Remember, too, that you can roll these into 529s tax free (sell the bond, put proceeds into a 529 immediately). If you don't live in a state with a tax, or one that doesn't give 529 breaks, then it doesn't make sense to do so. But for some, like me in Va, it's a double dip: You don't pay tax on the I Bond gain AND I get the 529 contribution write-off.
Thanks for all the great advice. I should have said that I may sell I-Bonds to pay for college costs after asking the bogleheads if it was a good idea.
When it comes to havoc, no one wreaks like me! - Dr. Heinz Doofenshmirtz

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Re: anybody sell I Bonds to buy something else?

Post by zeugmite » Sat Oct 20, 2018 1:31 am

Haven't thought this through but there should be a way to quantify the historically bad 0% fixed I-Bonds against alternatives. Like, taking into account tax deferral, what would alternatives have to be for those bonds to still be preferred over their remaining years? Probably only if there were long periods of high deflation (>2% on average) alternating with equally long periods of high inflation (>2% on average) would they not be beat by TIPS at current real yields of >1%.

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Re: anybody sell I Bonds to buy something else?

Post by Dude2 » Sat Oct 20, 2018 5:30 am

A few years ago I just got tired of dealing with TreasuryDirect and the limitations of only being able to buy a small amount each year. For simplification purposes I sold all my iBonds, and I simply bought short term Tips fund in TIRA. Have you seen this thread?

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John151
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Re: anybody sell I Bonds to buy something else?

Post by John151 » Sat Oct 20, 2018 12:33 pm

I haven’t sold any I Bonds, but I stopped buying them about ten years ago, when the fixed rate dropped below one percent. I’ve been investing in a tax-exempt bond fund instead.

Crackers
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Re: anybody sell I Bonds to buy something else?

Post by Crackers » Sat Oct 20, 2018 2:33 pm

We only started purchasing I Bonds in 2011. I have since retired but DW continues to work. I am considering selling enough 2011 and 2012 I bonds in order to maximize our Roth IRA contributions for this year. I thought I would purchase brokered CDs with the Roth contributions. Is contributing to a Roth IRA a good reason to sell I Bonds?

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Re: anybody sell I Bonds to buy something else?

Post by friar1610 » Sat Oct 20, 2018 4:18 pm

beardsworth wrote:
Thu Oct 11, 2018 11:33 am
feh wrote:
Wed Oct 10, 2018 10:30 am
I'm rethinking that approach, given the recent increases in interest rates. I could use those funds [proceeds from redeemed I Bonds] and very likely get better returns from CDs or short term bond funds.

Just wondering if anybody else has sold their I Bonds for similar reasons. The downside, obviously, is that they can't be re-purchased.
VictoriaF wrote:
Wed Oct 10, 2018 11:05 am
You don't buy I Bonds for their earnings. You buy them for protection from inflation.
Exactly.

CDs, depending on the chosen maturity, will pay you a fixed interest rate for 1, 2, 5, years, and then have to bought again if you still want to own CDs. Short-term bond funds have a changing internal portfolio but a relatively constant average maturity, typically 2–3 years.

By contrast, an I Bond will pay you tax-deferred CPI-indexed interest for up to 30 years.

There may, of course, be a place for all of these in any particular individual's overall portfolio, but I wouldn't cash I Bonds for purposes of buying either of the alternatives listed above, especially when it takes a while to accumulate a really meaningful "stash" of I Bonds under the current annual purchase limits.
That's my philosophy as well - a good mix of I-Bonds, bond mutual funds (both short and intermediate), CDs and (lately) money market funds for the fixed income portion of my portfolio. Each has advantages and disadvantages and a mix = diversification.
Friar1610

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