Sucks to Be An I-Bond Hater

[jhogue]

Imagine that... A doctor and a dentist find it too inconvenient to waste their precious time investing in I-bonds!

But seriously, the real question is what would they buy for guaranteed fixed income and inflation protection instead?

[Mark Leavy]

But seriously, the real question is what would they buy for guaranteed fixed income and inflation protection instead?

I think you nailed it, right there, jhogue.
Neither of those two things are part of my investment goals at all.
As such, I don't hate I-bonds. I don't think about them.

[Xan]

From a PP perspective, I just don't see any reason NOT to keep as much of my cash allocation as possible in I-bonds. At least at the present time. If they ever stop being such a good deal I can always cash them out.

[barrett]

From a PP perspective, I just don't see any reason NOT to keep as much of my cash allocation as possible in I-bonds. At least at the present time. If they ever stop being such a good deal I can always cash them out.

Let’s remember that we are always talking about buying I-Bonds as “taxable” holdings. A couple with a million dollars in taxable could easily buy $60,000 of electronic I-Bonds over the next 14 months. Assuming a PP allocation in each type of account, that’s about 1/4 of the couple’s cash in taxable. For a lot of people it’s just not that hard to build up a meaningful amount in I-Bonds. And, Pug, I get where you are coming from for your situation.

[Kriegsspiel]

I agree. It's not that big of a pain to use Treasury Direct to buy I-Bonds, and when you do it for years on end, it's not an insignificant chunk of your portfolio. I'm glad I've been doing it over the years.

[Kbg]

Does he think government bonds are still mostly in paper??? That's a complete bullhockey statement unless we assume he's unable to figure out electronic transfers of any kind.

An additional advantage for those in the accumulation stage, you can more than double your effective IRA contribution (non-ROTH)...and once you retire there are no RMDs. The main downside is the inability to rebalance with the risky side of your portfolio.

[ppnewbie]

Thanks for this post kbg! I've been off of the forum for a while because thinking of rebalancing into LTT's was literally causing me to lose sleep. Jumped on again two days ago and bingo the first five minutes I saw your post and was reminded to throw in my full year allocation of i-bonds at 7.12%.

Question:
Since the fixed rate is currently 0% Is there any advantage to waiting for the rate to reset in April 2022 to capture in increase in fixed rate or do folks on this forum think its better to just go all in again at the first of the year? Either way I am going to max out the 2022 allocation as well.

This forum is extremely valuable.

[Kbg]

Question:
Since the fixed rate is currently 0% Is there any advantage to waiting for the rate to reset in April 2022 to capture in increase in fixed rate or do folks on this forum think its better to just go all in again at the first of the year? Either way I am going to max out the 2022 allocation as well.

This one is easy...all in now.

Why: There is no guarantee or even a hint the fixed rate will go up. Meanwhile, you have deferred your bonds' interest penalty from expiring and there's at least a 50/50 chance the flexible rate goes down in May 22.

The above is an example of a basic investing principle for me. Act on what you know vs. act on a hope for something later.

The great thing about bonds is you can figure out down to the penny what amount of money you will have lost in opportunity cost and then estimate how much you might gain by assuming a base rate increase of whatever your best guess is and then computing the time value of that over the period you are going to hold the bonds for. Subtract the former from the latter and voila a perfectly rationale financial decision with uncertain information.

[Kbg]

Oh man the treasury direct website sucks so bad.

I'm completely going to ignore the 9.62% rate in May. It's just not worth it.

(At a macro level this is not great news...inflation is basically out of control)

[whatchamacallit]

Website isn't that bad once you get used to it. It does feel like a web gui on top of a unix terminal though.

$840 per $10000 over the next year if you buy now. No state income tax either.

[barrett]

$840 per $10000 over the next year if you buy now. No state income tax either.

I don't believe the $840 number is correct though. Did you calculate that or just grab the number from the TipsWatch article at https://tipswatch.com/?

Any I-Bonds purchased in April won't actually earn any interest until 8/1/22. They'll then earn the 7.12% annualized rate for five more months (last "payment" on 1/1/23). Then, starting 2/1/23 they will earn the annualized rate of 9.62% for six months. So, whatever you purchase this month will be worth about $840 by 7/1/23. So it's $840 earned over 14+ months.

All that being said, I am still planning to buy my annual allotment this month.

[dualstow]

Oh man the treasury direct website sucks so bad.

The forum has finally convinced me otherwise, but i love to see this comment.

[whatchamacallit]

$840 per $10000 over the next year if you buy now. No state income tax either.

I don't believe the $840 number is correct though. Did you calculate that or just grab the number from the TipsWatch article at https://tipswatch.com/?

Any I-Bonds purchased in April won't actually earn any interest until 8/1/22. They'll then earn the 7.12% annualized rate for five more months (last "payment" on 1/1/23). Then, starting 2/1/23 they will earn the annualized rate of 9.62% for six months. So, whatever you purchase this month will be worth about $840 by 7/1/23. So it's $840 earned over 14+ months.

All that being said, I am still planning to buy my annual allotment this month.

I just went off of this line from that website:

If you purchase I Bonds before April 30, you can guarantee a one-year return of very close to 8.4%.

I am assuming the reason it doesn't start earning interest until 3 months in has something to do with the 3 month penalty if cashed in before 5 years?

That makes me wonder now if there is a one time 3 month catch up at 5 years.

[barrett]

$840 per $10000 over the next year if you buy now. No state income tax either.

I don't believe the $840 number is correct though. Did you calculate that or just grab the number from the TipsWatch article at https://tipswatch.com/?

Any I-Bonds purchased in April won't actually earn any interest until 8/1/22. They'll then earn the 7.12% annualized rate for five more months (last "payment" on 1/1/23). Then, starting 2/1/23 they will earn the annualized rate of 9.62% for six months. So, whatever you purchase this month will be worth about $840 by 7/1/23. So it's $840 earned over 14+ months.

All that being said, I am still planning to buy my annual allotment this month.

I just went off of this line from that website:

If you purchase I Bonds before April 30, you can guarantee a one-year return of very close to 8.4%.

I am assuming the reason it doesn't start earning interest until 3 months in has something to do with the 3 month penalty if cashed in before 5 years?

That makes me wonder now if there is a one time 3 month catch up at 5 years.

The one-time 3-month catch up at five years is my understanding, though I haven't held any I-Bonds with TD long enough to see that. I guess that technically the TipsWatch quote is correct. I mean, you do get that a guaranteed one-year return, it's just not one year from the time of purchase. For bonds bought this month, you would get $840 in interest from 7/1/22 to 7/1/23 (with the first interest showing up on the TD site on 8/1/22).

I'm not quite sure why the TipsWatch guy would know less than I, but just don't be surprised when you don't have $840 until the 14+ month mark.

And you are correct about the no state income tax (and the little jhogue whispering in my ear tells me not to forget about the tax-free feature if used to pay for qualifying higher education).

[Xan]

(and the little jhogue whispering in my ear tells me not to forget about the tax-free feature if used to pay for qualifying higher education)

That's a great feature but don't forget there's also an income limitation on it.

[Kbg]

Oh man the treasury direct website sucks so bad.

The forum has finally convinced me otherwise, but i love to see this comment.

Actually I don't mind the website at all. I've never found it difficult to navigate and frankly the way you have to enter your password is more secure than more recent methods. I did read somewhere they are in the process of modernizing it but I don't recall where I read it.

[dualstow]

Oh, I didn’t realize you were joking. :-)
I deal with it once a year, so I’m just grateful i-bonds exist.

[dualstow]

You can also buy Treasury bills straight from the government at TreasuryDirect.gov. The website is antiquated and clunky,

thank you, Jason Zweig
https://www.wsj.com/articles/how-to-sto ... 1650641286

[jhogue]

it is somewhat surprising that Jason Zweig did not mention that there is a simple alternative to using TreasuryDirect to buy T-bills. You can buy and sell secondary market T-bills for 0.00% at Fidelity's bond desk and set your purchases to auto-roll.

This allows investors to customize their T-bill maturity and to buy and sell T-bills in tax-advantaged accounts (which you cannot do at TreasuryDirect.)

[Xan]

He also didn't mention I-bonds!

[dualstow]

I guess i-bonds are too “deep” for that article. Only very short-term cash.
He really should have mentioned T-bills via brokerage houses.

[jhogue]

Jason Zweig recently penned a column about I-bonds, so he is certainly aware of them.

[joypog]

it is somewhat surprising that Jason Zweig did not mention that there is a simple alternative to using TreasuryDirect to buy T-bills. You can buy and sell secondary market T-bills for 0.00% at Fidelity's bond desk and set your purchases to auto-roll.

This allows investors to customize their T-bill maturity and to buy and sell T-bills in tax-advantaged accounts (which you cannot do at TreasuryDirect.)

Are you sure you can do auto roll for secondary market T-bills? I couldn't find the setting and the Fidelty website says:

Eligible positions
Only Treasury auction securities, new-issue CDs with a term to maturity of 5 years or less, and certain CD strategies are eligible for this service. Treasury inflation-protected securities (TIPs), inflation-protected CDs (CDIPs or IFCDs), callable CDs, floating and adjustable rate CDs, and CD purchases exceeding $250,000 are all ineligible, as are all other fixed income instruments and all secondary Treasury or CD securities.

(what a badly written paragraph!)

[jhogue]

Sorry, I could be wrong about secondary market T-bills on auto-roll.

I know I used the auto-roll feature for Treasurys at Fidelity, but eventually emptied it out when I decided to max out my I-bond quota. Others on this forum did it too (Kriegsspiel?)

BTW, welcome to the forum joypog.

[joypog]

No worries, and thank you for the welcome! I'm enjoying life as a new convert....until the next big gold dip.