How would you categorize these savings bonds?

Discussion of the Cash portion of the Permanent Portfolio

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ochotona
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Re: How would you categorize these savings bonds?

Post by ochotona » Fri Mar 09, 2018 12:23 pm

pugchief wrote:So older I-bonds that are earning above market interest should be held for the whole 30 years then, correct?
I plan to do that, unless current interest rates rise higher than the bonds.
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jhogue
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Re: How would you categorize these savings bonds?

Post by jhogue » Fri Mar 09, 2018 3:16 pm

Pugchief,

The total interest rate on an I bond consists of a fixed rate plus a variable rate. I bonds mature thirty years from the month of purchase. The fixed rate is established at the time of purchase and remains in effect throughout those 30 years. The variable rate is re-set every six months, on 1 November and 1 May.

Based on your post, I estimate that your I bond is currently yielding 1-2% (fixed rate) + 2.48% (variable rate) = 3.48%-4.48% (total). The tax equivalent yield is even higher, depending upon your state and local residence at the time of redemption. That rate is considerably higher than anything now available from the U.S. Treasury with unbeatable safety, liquidity, and tax deferral for the life of the I-bond. If I were you, I would hang onto them until finally maturity.

P.S.:
Tax is owed on accrued interest in the final year of maturity, whether you redeem your I bonds or not, so there is no point of holding any savings bond past its final date of maturity.
“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: How would you categorize these savings bonds?

Post by barrett » Thu Mar 15, 2018 9:03 am

Xan wrote:Agreed, I consider them cash. Maybe it isn't quite as simple as normal cash, because you have to figure out how much you'd own after taxes if you cashed them out, but that amount is a cash amount.
Xan (or anyone else!),

Isn't that the same for all assets, though? If I sell stocks, bonds or a gold ETF in a taxable account, aren't the gains a "cash amount?"

With almost all of these saving bonds I am looking at about $3 of gains for every dollar invested. I have always viewed PP cash as dry powder for purchasing other assets, an emergency fund, money for paying recurring bills, college tuition, car payments, etc.

Again, I have good problem, but I just don't view these bonds the same as cash.
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Xan
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Re: How would you categorize these savings bonds?

Post by Xan » Thu Mar 15, 2018 10:07 am

barrett wrote:
Xan wrote:Agreed, I consider them cash. Maybe it isn't quite as simple as normal cash, because you have to figure out how much you'd own after taxes if you cashed them out, but that amount is a cash amount.
Xan (or anyone else!),

Isn't that the same for all assets, though? If I sell stocks, bonds or a gold ETF in a taxable account, aren't the gains a "cash amount?"

With almost all of these saving bonds I am looking at about $3 of gains for every dollar invested. I have always viewed PP cash as dry powder for purchasing other assets, an emergency fund, money for paying recurring bills, college tuition, car payments, etc.

Again, I have good problem, but I just don't view these bonds the same as cash.
Of course if you were to sell any of those assets, you'd end up in cash. But I don't think that means you can consider the current value you own in dollars as a "cash amount". I think you can do that with these bonds.
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Re: How would you categorize these savings bonds?

Post by jhogue » Thu Mar 15, 2018 1:25 pm

Barrett,

You are correct, in the strict sense that savings bonds are not "the same as cash." I love I bonds, but I can't take one down to the grocery store and exchange it for a gallon of milk. On the other hand, the greenbacks in my safety deposit box won't earn interest.

What makes savings bonds suitable for inclusion in the PP Cash quadrant is that they have the same safety, stability, and liquidity as Uncle Harry's proverbial Treasury Money Market Fund. But with much a much better rate of return and unbeatable tax treatment.
“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: How would you categorize these savings bonds?

Post by ochotona » Mon Mar 26, 2018 8:51 am

Latest paper I-Bonds came 2.5 weeks after my taxes were e-filed !!!

Out the door for electronic conversion in 14 hours!
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