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I Bonds
- Thread starter med2010
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100/0 starting off
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Me too, until I pay off my student loans.
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stocks are a reasonably good hedge against inflation. Why? Because as prices go up, the corporations can maintain their margins via the added revenue (from higher prices of their goods/services) offsetting their increased costs.
With I bonds, you are limited to 10K per year of electronic purchases and unlike TIPS you cannot sell them on the open market and can only redeem them with the Treasury.
Honestly if you are early in your career, you should not be worrying about bonds protecting your retirement nest egg. That is more of a concern at retirement when you will need to be using them to provide income.
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Place to park short term money? Maybe money you anticipate you will need in a year or so? Currently at 3.54%, it does beat savings accounts rates while being very low risk
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you cannot redeem an I bond prior to 12 months. After 1 year and before 5 years, you forfeit 3 months of interest payments if you redeem it.
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Bonds = 2 * (age - 40)
Most investors will eschew leverage, so this basically amounts to 100/0 allocations until age 40.
Most investors will eschew leverage, so this basically amounts to 100/0 allocations until age 40.
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Right, it's essentially at least a 1 yr CD. Haven't really looked into CD rates lately, but I'm pretty sure even with the 3 month forfeiture, it beats the CD rates.
Additional advantages are state/local tax free, federally deferred tax growth, and "feared" rising inflation rates improving the return
Just to be clear, I'm NOT advocating replacing stocks with I bonds based on a potentially increasing inflation rate environment. Just saying it may be a viable option to park money that will be needed in 1-5 years
D
deleted126335
Been buying the max for myself and wife for awhile. $10K per person. Least ugly horse at the ultra safe fixed income glue factory currently.
Treasury Direct can be a PITA. but worth it to me.
Treasury Direct can be a PITA. but worth it to me.
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Your other option are TIPS ETFs. IBonds are a better deal than TIPs. TIPs are easily purchased at any brokerage firm and low cost TIPs funds are what I own.
D
deleted126335
True. Right now at current rates and prices. Not alway true.
Not to mention the other disadvantages of I-Bonds: low purchase limits, Treasury direct. Consider an individual TIPs ladder in an IRA/401k Brokerage account. Institutional Pricing, Zero expense ratio, Zero risk if held to maturity.
I started a ladder awhile back, but just couldn't pull the trigger @ multiple rungs when I thought that TIPs prices were too high. Of course they did nothing but get more expensive. 😡. I own TIPs funds and individual TIPs- about 25% of my bond holdings. Looking to add to that percentage when the price compared to nominal Treasurys is favorable. I personally believe that TIPs/Ibonds should dominate fixed income portfolios of individual investors.
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In your eyes, what do you see as an Advantage of TIPS/I Bonds over a cheap Total Bond Index fund?
To be honest, since I'm still in my early 40s, my bond allocation is pretty low (like 10-15%ish of total portfolio and invested in only my 401k). However, I'm always looking to learn more about this asset class
D
deleted126335
All bonds have an expected inflation rate built into their current prices. Inflation linked bonds somewhat protect you from unexpected inflation. Think of them as having an insurance component. The insurance is worth something. So you should expect them to return less than nominal Treasurys. Which they often do.
