Is it time to sell I-Bonds?

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Woodshark
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Is it time to sell I-Bonds?

Post by Woodshark » Sun Aug 11, 2019 10:23 am

We have about 6% of our investable assets in I-Bonds. All are held at Treasury Direct, some in my name some in my wife's. I’m considering selling them for the sake of simplifying our portfolio. If I’m figuring it correctly, the average compounded interest rate we are earning is around 1.7%. With money market funds earning over 2% it’s tempting to just move the funds there for simplicity. We are both retired and mostly in the 12% tax bracket, so I don’t think the tax savings are amounting to much when you compare them. (Although we do have state income tax.)

What are your thoughts on selling to simplify? Pro or con?
Last edited by Woodshark on Sun Aug 11, 2019 12:29 pm, edited 1 time in total.

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Ice-9
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Re: Is it time to sell I-Bonds?

Post by Ice-9 » Sun Aug 11, 2019 10:54 am

Everyone's situation is different.

I continue to hold a large amount of 1.6% fixed rate I-Bonds (much higher composite rate right now) that I originally bought in 2003 intending it to be an emergency fund. Time proved them to be a better investment than the bond funds in my portfolio, so I eventually declared those older I-bonds instead to be part of my retirement portfolio and started to buy a small amount of newer I-bonds each 6-month rate period to become new "upper tier" emergency fund money, with the lower tier being in online savings accounts.

I still like having that "upper tier" of my emergency fund in I-Bonds because:
(1) The rate is still competitive when comparing with online bank accounts, especially considering I-bonds are state-tax-free
(2) tax deferral until redeemed
(3) that part of my emergency fund will be indexed to inflation, which is a neat perk in my opinion
(4) often, I-bonds even seem competitive to CDs that might otherwise occupy "upper tier of emergency fund" territory

dbr
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Re: Is it time to sell I-Bonds?

Post by dbr » Sun Aug 11, 2019 11:03 am

I wouldn't keep a 6% asset slice in anything assuming no cost to get out. We had some I bonds and when it became evident that I bond holdings would never be a large slice of the portfolio we decided to just cut ties with Treasury Direct as not worth having an extra (and weird) account.

But, a better alternative might be to continue to increase your holding. As pointed out in the previous post I bonds have a lot of advantages. Access to a reasonable allocation of inflation indexed bonds that have no interest rate risk and are tax deferred/state tax exempt is one of the more valuable options out there with the larger of these being the inflation protection.

HockeyFan99
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Re: Is it time to sell I-Bonds?

Post by HockeyFan99 » Sun Aug 11, 2019 11:05 am

The tax deferral piece if I-Bonds is particularly valuable for us. Not something I appreciated when I started buying, but makes them significantly higher TEY over CDs and savings accounts. If I could buy more - or go back to the early 2000s and buy those! - I would.
"I'm spending a year dead for tax reasons." - Hotblack Desiato

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Rob5TCP
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Re: Is it time to sell I-Bonds?

Post by Rob5TCP » Sun Aug 11, 2019 11:33 am

With the state tax exemption the difference might be nominal.
Is the inflation protection worth anything to you?
Also, if yours are 0% real return, you might start selling those and
buy the new ones that are .5% real return.

That should give you more than CD's (with the advantage again of
tax exemption - however large or small that might be). Also, they are relatively inexepensive protection from any future unexepected inflation.

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Mel Lindauer
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Re: Is it time to sell I-Bonds?

Post by Mel Lindauer » Sun Aug 11, 2019 11:57 am

Woodshark wrote:
Sun Aug 11, 2019 10:23 am
We have about 6% of our investable assets in I-Bonds. I’m considering selling them for the sake of simplifying our portfolio. If I’m figuring it correctly, the average compounded interest rate we are earning is around 1.7%. With money market funds earning over 2% it’s tempting to just move the funds there for simplicity. We are both retired and mostly in the 12% tax bracket, so I don’t think the tax savings are amounting to much when you compare them. (Although we do have state income tax.)

What are your thoughts on selling to simplify? Pro or con?
Are these paper or TreasuryDirect?
Best Regards - Mel | | Semper Fi

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jeffyscott
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Re: Is it time to sell I-Bonds?

Post by jeffyscott » Sun Aug 11, 2019 12:32 pm

I have been selling as they reset to the lower rate, except for a few old paper ones at 3%+. The TD ones were at 0, 0.2, and 0.3% real. The only ones I hesitated about a bit were the 0.3% ones that we held for only a bit over a year.

However, with 10 year and under TIPS heading toward 0 real yield, maybe even the 0.2% ones are worth holding for a while now? We will be spending much of the money from ours on a new vehicle soon and they were the best source of cash for that at this time.
Time is your friend; impulse is your enemy. - John C. Bogle

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Woodshark
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Re: Is it time to sell I-Bonds?

Post by Woodshark » Sun Aug 11, 2019 12:35 pm

Mel Lindauer wrote:
Sun Aug 11, 2019 11:57 am
Are these paper or TreasuryDirect?


Sorry, that detail should have been included in the original post. They are at TreasuryDirect.
I have edited the original to include that information.

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flamesabers
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Re: Is it time to sell I-Bonds?

Post by flamesabers » Sun Aug 11, 2019 12:42 pm

How long have you had these I-Bonds? If it's under 5 years, you may want to keep them for at least 5 years to avoid the 3-month interest penalty.

If the money market rate fell below what you're earning with I-Bonds, would you be more inclined to keep your money with the I-Bonds?

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goodenyou
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Re: Is it time to sell I-Bonds?

Post by goodenyou » Sun Aug 11, 2019 2:23 pm

Damn...I thought it was time to buy I-Bonds! I thought long term treasuries were the way to go.

Now I am really confused :oops:
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

BlueOrange10
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Re: Is it time to sell I-Bonds?

Post by BlueOrange10 » Sun Aug 11, 2019 2:35 pm

goodenyou wrote:
Sun Aug 11, 2019 2:23 pm
Damn...I thought it was time to buy I-Bonds! I thought long term treasuries were the way to go.

Now I am really confused :oops:
It all depends on where you see inflation years from now.

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Phineas J. Whoopee
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Re: Is it time to sell I-Bonds?

Post by Phineas J. Whoopee » Sun Aug 11, 2019 2:40 pm

BlueOrange10 wrote:
Sun Aug 11, 2019 2:35 pm
goodenyou wrote:
Sun Aug 11, 2019 2:23 pm
Damn...I thought it was time to buy I-Bonds! I thought long term treasuries were the way to go.

Now I am really confused :oops:
It all depends on where you see inflation years from now.
In my portfolio I have a substantial slice of inflation-protected fixed income, 40%, and I make no predictions about future inflation. Instead, by my analysis inflation is the greatest long-term financial risk I face, so I bought that big a stake to account for the risk.

40% is in equities, and 20% is in nominal fixed income because inflation isn't the only risk I face

PJW

Momus
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Re: Is it time to sell I-Bonds?

Post by Momus » Sun Aug 11, 2019 2:48 pm

Sold. Thanks for the reminder.

1.4% interest lol :oops:

JBTX
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Re: Is it time to sell I-Bonds?

Post by JBTX » Sun Aug 11, 2019 3:05 pm

I'm going to buy the limit this year (before November)at 0.5% fixed, and offset by selling some of my 0.0 fixed. I suspect the fixed rate will go down. I seriously doubt we are going to see less than 2.0% inflation on average going forward. I would not be shocked to see short term interest rates otherwise fall.

illumination
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Re: Is it time to sell I-Bonds?

Post by illumination » Sun Aug 11, 2019 4:50 pm

No way would I fool with I-bonds if they made up only 6% of my portfolio.

Almost all my fixed income is in money market mutual funds. I use to have a hodgepodge of CDs, high Yield Savings, bond funds, etc.

It's just so easy with money market mutual funds and I essentially have instant liquidity and no possible loss of principal. Unless I had an absurd amount of money in fixed income, I'll take the small hit for all those advantages.

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goodenyou
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Re: Is it time to sell I-Bonds?

Post by goodenyou » Sun Aug 11, 2019 5:03 pm

Phineas J. Whoopee wrote:
Sun Aug 11, 2019 2:40 pm
BlueOrange10 wrote:
Sun Aug 11, 2019 2:35 pm
goodenyou wrote:
Sun Aug 11, 2019 2:23 pm
Damn...I thought it was time to buy I-Bonds! I thought long term treasuries were the way to go.

Now I am really confused :oops:
It all depends on where you see inflation years from now.
In my portfolio I have a substantial slice of inflation-protected fixed income, 40%, and I make no predictions about future inflation. Instead, by my analysis inflation is the greatest long-term financial risk I face, so I bought that big a stake to account for the risk.

40% is in equities, and 20% is in nominal fixed income because inflation isn't the only risk I face

PJW
There are beliefs that we are "Turning Japanese.." Do you think so...?
"Ignorance more frequently begets confidence than does knowledge" | "The best years you have left are the ones you have right now"

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Phineas J. Whoopee
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Re: Is it time to sell I-Bonds?

Post by Phineas J. Whoopee » Sun Aug 11, 2019 5:32 pm

goodenyou wrote:
Sun Aug 11, 2019 5:03 pm
Phineas J. Whoopee wrote:
Sun Aug 11, 2019 2:40 pm
BlueOrange10 wrote:
Sun Aug 11, 2019 2:35 pm
goodenyou wrote:
Sun Aug 11, 2019 2:23 pm
Damn...I thought it was time to buy I-Bonds! I thought long term treasuries were the way to go.

Now I am really confused :oops:
It all depends on where you see inflation years from now.
In my portfolio I have a substantial slice of inflation-protected fixed income, 40%, and I make no predictions about future inflation. Instead, by my analysis inflation is the greatest long-term financial risk I face, so I bought that big a stake to account for the risk.

40% is in equities, and 20% is in nominal fixed income because inflation isn't the only risk I face

PJW
There are beliefs that we are "Turning Japanese.." Do you think so...?
Nice reference to The Vapors from 1980.

No, I neither think so nor think not. If I may repeat myself, I'll repeat myself: I make no predictions about future inflation.

This message was sponsored by the Department of Redundancy Department.

PJW

smectym
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Re: Is it time to sell I-Bonds?

Post by smectym » Sun Aug 11, 2019 6:37 pm

Just looking at the composite rate of the I bonds we hold on Treasury Direct right now, it looks like right around 2.75% (individual bond composite rate ranges from 2.1% to 3.53%). Supposing I were to sell them and pay tax on them, where would I get a better deal, including zero principal fluctuation, tax deferral, state tax free etc.? It's a pretty unique product. Short of (a) some sort of financial emergency that would require a raid on the I-bond portfolio or (b) redeeming each bond as it reaches final maturity, I can't think of any reason to unload them. Others differ, but I don't find "simplifying the overall portfolio" or "it's a hassle dealing with Treasury Direct" to be compelling reasons.

Topic Author
Woodshark
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Re: Is it time to sell I-Bonds?

Post by Woodshark » Tue Aug 13, 2019 7:40 am

Did a little more research this morning. Most of all our I-bonds were purchased from 2012 through May of 2014 so we are just past the five year mark. Also most are at a fixed interest rate of 0.0%. Since we're past five years I can sell without a penalty. The only question I have to ask myself is, is it worth selling and repurchasing to get the .5% bump. Or, since it's such a small part of our portfolio, get out all together.

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