Gyroscopic Investing

Note: You can find the Bank Bonus stuff in its own thread in the cash portion ⇢ viewtopic.php?f=4&t=12472

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Howdy! I looked on the site and couldn't find an answer to my question, so asking here

Any using I Bonds for the PP, and for which 25% are you using them? I think it's an excellent buy at the current fixed rate of 7.12 percent. The only downside is that can you only load up on I Bonds 10,000 USD per year. Though if you are married, you're up to 20,000 USD, which is still small money, but hard to pass on in this environment. It's excellent deflation protection, quoting for TIPS watch:

"An I Bond with a fixed rate of 0.0% will accurately match U.S. inflation until it is redeemed, earning interest that is tax-deferred and offering excellent protection against deflation. In times of deflation, an I Bond never loses any value."

Some great articles are below:

https://tipswatch.com/2021/01/06/an-i-b ... ust-do-it/

https://www.wsj.com/articles/i-bonds-th ... 1622213324

https://www.getrichslowly.org/safe-inve ... gh-return/

Not for the long term treasury portion, that’s for sure. Maybe for the cash portion, arguably.

I-bonds are for the cash allocation. We call them "deep cash" because they have a couple different tiers that you have to clear (no redemption until 1 year, 3 month interest penalty before 5 years), but once you're unencumbered, they're an excellent form of cash.

@ Goldismoney 23: Welcome to the forum!

As an investor following Harry Browne’s Permanent Portfolio, I also use I-bonds as “deep cash,’ by which I mean cash that I do not hold for immediate liquidity. At present, I keep about half of my Cash allocation (roughly 12.5%) in I-bonds and the other half in FDLXX, which is Fidelity’s Treasury only money market fund. Together, I-bonds and FDLXX provides a strong combination of safety, liquidity, and yield.

Investing in I-bonds is a minor departure from Browne’s strategy calling for the entire Cash quadrant of the PP in a Treasury money market fund at all times. I-bonds are just as safe as a TMMF. After one year they are as liquid as a T-note. After five years they have no withdrawal penalty. In addition to their current high yield, I-bonds also have superior tax treatment compared to other Cash Alternatives: They have 30-year federal tax deferral and are completely exempt from state and local taxes.

Thank you! You're my hero! Just bought some, and the wife is topping up! I'm very grateful for the detailed response!

Kriegsspiel wrote: ↑Sat Nov 13, 2021 9:34 am I-bonds are for the cash allocation. We call them "deep cash" because they have a couple different tiers that you have to clear (no redemption until 1 year, 3 month interest penalty before 5 years), but once you're unencumbered, they're an excellent form of cash.

Thanks so much!

I Shrugged wrote: ↑Sat Nov 13, 2021 9:22 am Not for the long term treasury portion, that’s for sure. Maybe for the cash portion, arguably.

That's what I was thinking! Thanks you for the confirmation! Grateful!

I-Bonds have no place in a HBPP. They really aren't suitable for a VP either. Something needs to have an upside potential of at least 5X to satisfy HB criteria for a good risk/reward speculation in a VP. YMMV.

johnnywitt wrote: ↑Tue Jan 11, 2022 2:45 pm I-Bonds have no place in a HBPP. They really aren't suitable for a VP either. Something needs to have an upside potential of at least 5X to satisfy HB criteria for a good risk/reward speculation in a VP. YMMV.

Can you clarify that? Why not have your PP cash in I-bonds?

Like Pug, 10k per year is just pocket change to him

Xan wrote: ↑Tue Jan 11, 2022 4:12 pm

johnnywitt wrote: ↑Tue Jan 11, 2022 2:45 pm I-Bonds have no place in a HBPP. They really aren't suitable for a VP either. Something needs to have an upside potential of at least 5X to satisfy HB criteria for a good risk/reward speculation in a VP. YMMV.

Can you clarify that? Why not have your PP cash in I-bonds?

A couple of things...

1) If we are looking at realistic scenarios from our current starting point (30-year Treasury yield is at 2.07%), there's no hope of the bond quadrant returning 500% over any reasonable time frame. But holding them can still be beneficial as we saw in March of 2020.

2) We've long referred to I-Bonds as "deep cash" on this forum. That term just applies to money in the cash quadrant that is extremely unlikely to be needed for either living expenses or rebalancing into stocks, gold or treasuries.

And we should always only be talking about I-Bonds in terms of taxable accounts as that is the only place they can be held (despite their tax-deferred qualities).

But this stuff is all so dependent on one's individual situation. For someone with $10,000 in cash in their taxable account, buying I-Bonds probably doesn't make sense. With much larger (but not massive) amounts, it can absolutely be a good move. Also worth weighing is if the investor is still accumulating or retired and drawing from investments. In my own early(ish)-retirement situation, I think I am maxed out on I-Bonds due to the fact that I bought a bunch early on. A potential pitfall for me is having a bunch of I-Bonds mature at a time that I am either doing Roth conversions or just withdrawing from tIRA accounts (so as to avoid paying too much in taxes in any given year).

I-bonds are not a one size fits all solution.

The only issue I could see with I-bonds is that they're issued directly to you buy the Treasury, unlike bills/bill MFs that you buy at your broker. It's conceivable that in a big SHTF event, the Treasury would refuse to cash your I-bonds. I still think it's a good risk to take for deep cash.

Kriegsspiel wrote: ↑Wed Jan 12, 2022 8:41 am The only issue I could see with I-bonds is that they're issued directly to you buy the Treasury, unlike bills/bill MFs that you buy at your broker. It's conceivable that in a big SHTF event, the Treasury would refuse to cash your I-bonds. I still think it's a good risk to take for deep cash.

If the treasury can’t redeem i bonds , there is a lot more to worry about then your i bonds

mathjak107 wrote: ↑Wed Jan 12, 2022 8:06 am The 10k would be more an inconvenience opening the accounts with treasury direct and moving money and would be peeing in the ocean for us so I look for bigger deals with more money all the time.

One man's peeing in the ocean is another man's partial solution for becoming semi wealthy! Seriously, those bank deals sound sweet if a couple has that kind of cash to move around.

Obviously I-Bonds are really only a small part of a long-term strategy. And for each individual there is going to be an approximate cutoff age beyond which they become somewhat less attractive due to the small penalties.

Kriegsspiel wrote: ↑Wed Jan 12, 2022 8:41 am The only issue I could see with I-bonds is that they're issued directly to you buy the Treasury, unlike bills/bill MFs that you buy at your broker. It's conceivable that in a big SHTF event, the Treasury would refuse to cash your I-bonds. I still think it's a good risk to take for deep cash.

Kriegs,
In case of financial Armaggedon, it would be safer and more liquid to hold a Treasury-issued security than any other form of fiat currency.

Besides, that, screwing all the little old ladies in Dubuque with their paper Savings Bonds could not possibly bail out the U.S. Treasury if it was faced with a liquidity event that threatened the trillions that are at stake in the global Treasury market.

barrett wrote: ↑Wed Jan 12, 2022 8:57 am

mathjak107 wrote: ↑Wed Jan 12, 2022 8:06 am The 10k would be more an inconvenience opening the accounts with treasury direct and moving money and would be peeing in the ocean for us so I look for bigger deals with more money all the time.

One man's peeing in the ocean is another man's partial solution for becoming semi wealthy! Seriously, those bank deals sound sweet if a couple has that kind of cash to move around.

Obviously I-Bonds are really only a small part of a long-term strategy. And for each individual there is going to be an approximate cutoff age beyond which they become somewhat less attractive due to the small penalties.

Barrett,
1. I agree that I-bonds are part of a long term strategy. I open my TreasuryDirect account only once or twice each year.
2. I also agree that the utility of I-bonds changes over an investor's lifetime. For instance, I like Mel Lendauer's strategy of using EE bonds as a kind of DIY early retirement annuity, but at my age (67) it does not make sense.

mathjak107 wrote: ↑Wed Jan 12, 2022 9:06 am Some spend their lives clipping coupons too or reusing tea bags so everything is relative

mathjak,

Shame on you!

There is absolutely nothing wrong with teaching thrift to our children and grandchildren.

One of the giants of the American Revolution, Benjamin Franklin, expressed it best:

A PENNY SAVED IS A PENNY EARNED

jhogue wrote: ↑Thu Jan 13, 2022 9:27 am

mathjak107 wrote: ↑Wed Jan 12, 2022 9:06 am Some spend their lives clipping coupons too or reusing tea bags so everything is relative

mathjak,

Shame on you!

There is absolutely nothing wrong with teaching thrift to our children and grandchildren.

One of the giants of the American Revolution, Benjamin Franklin, expressed it best:

A PENNY SAVED IS A PENNY EARNED

I don't think Mathjak was endorsing profligate spending. He was addressing the point of view that I-bonds were too much trouble for too little reward, and pointing out that some people spend time on clipping coupons and reusing teabags, with the idea that people have different thresholds for exchanging their time for money.

Re: the "penny saved is a penny earned" quote, it's actually better than that: a penny earned gets taxed, and a penny saved is tax-free.

Sorry, Xan, but we will have to agree to disagree.

I personally re-use tea bags. I also clip coupons for my local carwash.

I also labor under the assumption that everyone reading the forum personally knows that you can't invest in something unless you save something. As you suggest, the imperative to save is redoubled by the effect of our confiscatory tax system.

Much of what is wrong with the country today could be fixed by people being more careful with their own money. Dismissive attitudes don't help.

jhogue wrote: ↑Thu Jan 13, 2022 9:53 am Sorry, Xan, but we will have to agree to disagree.

I personally re-use tea bags. I also clip coupons for my local carwash.

I also labor under the assumption that everyone reading the forum personally knows that you can't invest in something unless you save something. As you suggest, the imperative to save is redoubled by the effect of our confiscatory tax system.

Much of what is wrong with the country today could be fixed by people being more careful with their own money. Dismissive attitudes don't help.

I don't believe that Mathjak had a dismissive attitude. Perhaps he could clarify his position.

Somebody said that I-Bonds weren't worth the trouble, and Mathjak said that some people clip coupons and reuse teabags, so for those people (and presumably many others!) I-Bonds would definitely be worth the trouble.

I'll let Mathjak answer for his opinion but I think this debate is between jhogue and pug. Mathjak merely seems to be saying that people make their own decisions about what their time is worth.

Xan wrote: ↑Thu Jan 13, 2022 9:34 am

jhogue wrote: ↑Thu Jan 13, 2022 9:27 am

mathjak107 wrote: ↑Wed Jan 12, 2022 9:06 am Some spend their lives clipping coupons too or reusing tea bags so everything is relative

mathjak,

Shame on you!

There is absolutely nothing wrong with teaching thrift to our children and grandchildren.

One of the giants of the American Revolution, Benjamin Franklin, expressed it best:

A PENNY SAVED IS A PENNY EARNED

I don't think Mathjak was endorsing profligate spending. He was addressing the point of view that I-bonds were too much trouble for too little reward, and pointing out that some people spend time on clipping coupons and reusing teabags, with the idea that people have different thresholds for exchanging their time for money.

Re: the "penny saved is a penny earned" quote, it's actually better than that: a penny earned gets taxed, and a penny saved is tax-free.

A penny saved Isa penny earned but without good compounding it’s always a penny .even less with inflation

What I meant is explained here

https://www.kitces.com/blog/worried-abo ... all-stuff/

MangoMan wrote: ↑Thu Jan 13, 2022 11:27 am

mathjak107 wrote: ↑Thu Jan 13, 2022 11:16 am
A penny saved Isa penny earned but without good compounding it’s always a penny .even less with inflation

What I meant is explained here

https://www.kitces.com/blog/worried-abo ... all-stuff/

Yep. And the same applies to investing as it does to spending.

Yep . Me concentrating on 10k worth of i bonds in the big picture really does nothing for me …I am better served finding better bank deals and credit card deals as far as bonuses

mathjak107 wrote: ↑Thu Jan 13, 2022 11:42 am

MangoMan wrote: ↑Thu Jan 13, 2022 11:27 am

mathjak107 wrote: ↑Thu Jan 13, 2022 11:16 am

A penny saved Isa penny earned but without good compounding it’s always a penny .even less with inflation

What I meant is explained here

https://www.kitces.com/blog/worried-abo ... all-stuff/

Yep. And the same applies to investing as it does to spending.

Yep . Me concentrating on 10k worth of i bonds in the big picture really does nothing for me …I am better served finding better bank deals and credit card deals as far as bonuses

I understand all you say ... on both ends.

As I write this I am drinking tea partially made from used tea bags. That does not require any more of my time to do so. But I lament that I no longer will fight for all $5 or $10 savings as I'd always do in the old days because now "it is just not worth it". This is me who has to still be in the top 1% of frugality (if not the top 0.1%!).

I heavily questioned the iBonds because a single person (without going through a lot of machinations) is limited to buying only $15,000 per year. Plus, if you were going through a full portfolio makeover with just about all other investment components you have no limits on how much you could invest into each component.

That is definitely NOT the case with iBonds.

If one were doing a total makeover on a $500,000 portfolio the most one could today into iBonds would be $15,000. Which would only be 3% of your total portfolio. Plus of that annual $15,000 1/3 of it ($5,000) has a limited time frame to buy it (only upon submitting your tax return and then that submitted tax return finally resulted in your getting credited for the purchase). I am well aware of the arguments that many have made here that over many years $15,000 per year will start adding up. But it is still not the same as being able to make a lump sum purchase of just about any other investment.

All that said I've become an enthusiastic iBond purchaser since 2020 buying all that I am able to do so.

However on the other end please let us know whenever you can on your credit card deals and bank deals.

I have the credit card that gives me 2% on all purchases (1% on charging plus the other 1% on paying the bill). The problem for me with many of the bank offers has been twofold. One if requiring to do so many debit purchases per month (I've yet to do one in my life). The other is that the investments are limited to only so much -- bringing us back to the iBonds limitation you've cited.

Getting back to iBonds. At some point I will resurrect the point someone made here regarding how many of us will go through all kinds of contortions to squeeze out some extra return on the cash portion of our investments. Buying iBonds seems to require much effort than some of those contortions with greatest absolute dollar returns.

I don't get why you'd think buying I-bonds is trouble. It takes maybe 10 minutes a year to do.