SOME OLDER THREADS ON EE BONDS
# EE Bonds vs Roth IRA # June 2020 | # EE Bonds = 3.5% 20-Year Treasury # Apr 2020 | # ee bonds # June 2017 |
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From an i-bond Q&A Thread:
(kriegs)
(jhogue)20 years for EE doubling. They both earn interest for 30 years.
(snedgar)I I try to emphasize that I-bonds and EE-bonds are not the same thing. I-bonds are for “Deep Cash.” EE-Bonds are for “Deep Bonds.” Think of opposite ends of the barbell.
(jhogue)@JHogue, could you expand on your comment, below, regarding ”EE-Bonds are for “Deep Bonds"? I have not previously heard that perspective.
(Xan)@snedgar:
Harry Browne originally prescribed a Treasury Money Market mutual fund for the Cash quadrant of the HBPP. The idea of “Deep Cash” originated with Medium Tex. He used it to describe using I-bonds as an improved cash alternative. MT argued that I-bonds are as safe and liquid as a Treasury Money Market, but they offer superior yield and tax treatment. To get full value from I-bonds, though, you must hold I-bonds for a minimum of one year; 5 years to avoid any penalty; and 30 years for maturity.
EE bonds can play an analogous “deep” role in the Bond quadrant of the HBPP. They are as secure as a 20 or 30 year Treasury bond. When held for 20 years, EE bonds double in value, producing an impressive tax-deferred annualized yield of 3.53%. At present 20 year T-notes yield 2.19%. Thus, similar to I bonds, EE bonds offer a superior long-term yield as well as the advantages of federal tax deferral for the life of each bond.
The catch comes in actually holding EE bonds. The annual yield is quite low (0.1% p.a.). Since you cannot get the doubling yield effect unless you hold them for the entire 20 year period, they are not as effectively liquid as I-bonds or regular Treasurys. Many investors also argue that they can beat the 3.53% fixed yield by using stocks instead of bonds. That may be true for some investors some of the time, but it is also beside the point: Holding EE bonds offers the possibility of improving the long term yield for the Bond quadrant.
(snedgar)I agree that I-bonds are a fit for deep cash. If you need to cash them out before 5 years the penalty is really minimal, and you're ahead of where you'd have been with a money market account anyway.
I'm not sold on EE-bonds as deep bonds. If the 30-year Treasury starts yielding, say, 5%, then you can't just sell your EE-bonds you've had for, say, 8 years. You're stuck.
(jhogue)…. G-Fund…
(jhogue)
1. I agree that the audience for EE bonds is smaller than that of I bonds. I would also add that if you buy EE bonds after you turn 65, you are probably buying them for your heirs.
2. It would take a 300+basis point burst of inflation in order to raise the 30 year T bond from its current 2% yield to 5%. I think that would require enormous structural changes in terms of a reversal of the current demographic trends and inflationista-style monetary policies. Given the Japanese deflationary example of the last 30 years, I can't foresee a scenario demonstrating how that might happen.
@snedgar:
1. No magic in US savings bonds, just a limited free lunch for the middle class.
2. The only problem I can see with the G-fund is that the rest of us can't buy it.