vanguard vs fidelity

Discussion of the Bond portion of the Permanent Portfolio

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vnatale
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Re: vanguard vs fidelity

Post by vnatale » Mon Feb 17, 2020 1:17 pm

jhogue wrote:
Fri Jun 08, 2018 11:41 am
Tax simplification: yet another reason to buy I bonds!

With I bonds, you get 30 years of tax deferral outside the increasing complications of an IRA. And that means no RMDs after age 70 ½.

Besides that, in a rising interest rate environment a ladder of I bonds is the best guaranteed protection against inflation. Currently, I-bonds are yielding 2.52%, with a fixed income component (real yield) of +0.3%. Should the Fed raise interests again, I bonds’ variable rate will reset twice per year.

I do like STTs in taxable, and Treasury zeroes in tax deferred accounts, but only after I fill my quota of I bonds.
It's obvious from the many times you extolled the virtues of I bonds that you are a major fan of them.

However, in the case of either a flat interest rate environment or a declining one what are the downsides to holding I bonds rather than their alternatives?

Also, it seems due to the limitations on the $$$$ asmount a single person can purchase in a year any actual achieved advantages from holding I bonds would be fairly tiny in a portfolio of any size?

Vinny
"I only regret that I have but one lap to give to my cats."
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jhogue
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Re: vanguard vs fidelity

Post by jhogue » Mon Feb 17, 2020 2:32 pm

Vinny,

1. I bonds are guaranteed by the US Treasury to not go below 0% yield in a deflationary interest rate environment. There is no such guarantee for T-bills or TIPS. Also, if you are particularly worried about long term deflation, you might want to investigate EE bonds, which are guaranteed to double in value in 20 years regardless of where interest rates go in the intervening years. I personally believe that the threat of inflation is much greater than the threat of deflation, but who knows for sure? You could always buy some of each.

2. Each person can buy $10,000 in I-Bonds from TreasuryDirect + $5,000 with their tax refund + $10,000 for a living trust, or a total of $25,000 per year. After a decade or two of adding to that principal, plus semi-annual compounded interest, plus state and local tax exemption, plus federal income tax deferral, they do add up. Currently, I have about 40% of my PP Cash in savings bonds, with the rest in T-bills and a Treasury only Money Market Fund.

To be sure, I am not saying that a pile of I-bonds will make you rich. But I do regard them as the closest thing there is to a free lunch for those who aspire to financial independence and a well-diversified portfolio.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: vanguard vs fidelity

Post by vnatale » Wed Apr 22, 2020 7:10 pm

jhogue wrote:
Fri Jun 08, 2018 11:41 am
Tax simplification: yet another reason to buy I bonds!

With I bonds, you get 30 years of tax deferral outside the increasing complications of an IRA. And that means no RMDs after age 70 ½.

Besides that, in a rising interest rate environment a ladder of I bonds is the best guaranteed protection against inflation. Currently, I-bonds are yielding 2.52%, with a fixed income component (real yield) of +0.3%. Should the Fed raise interests again, I bonds’ variable rate will reset twice per year.

I do like STTs in taxable, and Treasury zeroes in tax deferred accounts, but only after I fill my quota of I bonds.
Can this ladder be set up at the time of a first initial purchase? Or, does it only naturally occur as one is making annual purchases?

Vinny
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Re: vanguard vs fidelity

Post by jhogue » Thu Apr 23, 2020 2:06 pm

I normally max out my quota of electronic I-bond quota once each year.

However, you can also purchase I-bonds monthly through TreasuryDirect's Payroll Savings Plan as well, which would give you more rungs on your I-bond ladder.

See:
https://www.treasurydirect.gov/indiv/he ... asesavings
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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