Inflation - What are you doing different

[jhogue]

@ barrett:
I understand your desire to keep things as simple as possible.

I won't make a decision on when to deliver 2022 gifted I bonds until after the November 1, 2022 interest rate re-set. The option to choose when to deliver gifted I-bonds is an attractive feature, but sooner is usually better than later.

[barrett]

@ barrett:
I understand your desire to keep things as simple as possible.

I won't make a decision on when to deliver 2022 gifted I bonds until after the November 1, 2022 interest rate re-set. The option to choose when to deliver gifted I-bonds is an attractive feature, but sooner is usually better than later.

jhogue, Are you saying that if the CPI-U numbers are still high from April to September (i.e. a continued high inflation rate on bonds starting 11/1/22) that you will buy another $20,000 in early 2023 and push off delivering/receiving $20,000 in bonds to 2024 or later? Or something close to that?

[vnatale]

Gifting I-bonds is a strategy to buy more than the $10K per person limit by buying I-bonds as gifts.

Not directly related to this discussion but DEFINITELY related to iBonds....

On my 2019 tax return I directed $5,000 of my refund to go towards purchasing iBonds. Instead, I later received a $5,000 refund from the IRS.

On my 2020 tax return I directed $5,000 of my refund to go towards purchasing iBonds. I had noted where I'd not done all properly regarding the preparation of my 2019 return and corrected that on this 2020 tax return. Many, many, many months later after filing that return I received paper iBonds in the mail.

On my 2021 tax return I directed $5,000 of my refund to go towards purchasing iBonds. I had completed the return for 2021 the same as I had for 2020 regarding iBonds. To my dismay the IRS again last week sent me a $5,000 refund. I assume I have no further recourse regarding this?

Thinking about it further the only differences in filing the returns and the commonalities with the unsuccessful attempted purchases of the iBonds were that the successful 2020 was paper filed while the 2019 and 2021 returns were e-filed.

I have yet to see any response to this.

Though iBonds are wonderful they are of limited wonderfulness.

With the annual limitations that how much a single person can buy they represent only a tiny portion of a portfolio of a material size. And, it's made even worse when things like the above happen, effectively reducing one's annual limit by a full 33%.

Is there any other investment wherein you are limited to how much you can invest in it per year?

[jhogue]

@ barrett:
My tentative plan is to deliver $10 K each in 2023 and $10K in 2024 from my gift box. However, I retain the option to push those deliveries into 2024+ 2025 if I think inflation measured by CPI-U will drop significantly. I probably won't do that, but it is always nice to have options.

[jhogue]

@ Vinny:

I-bonds are not magic.

In the immortal words of Medium Tex, they are simply "the best looking horse at the glue factory!"

[Dieter]

“Tiny portion of a portfolio of material size”

How do you define a portion of material size?

Over what investing horizon?

Yeah, if given a lump sum of $10M

But if investing over time, $10k/year == $100k + interest, so after 10 years == 10% of a $1m portfolio

Have a spouse, can get to 20% of that in 10 years

Or 10% of $2m; 40% of the cash portion of the PP

But, yeah, once over $4m, gets to 5% or less

Limit should be indexed to inflation

[dualstow]

“Tiny portion of a portfolio of material size”

How do you define a portion of material size?

Over what investing horizon?

I’d like to know, too. Material size = what

[vinny] Is there any other investment wherein you are limited to how much you can invest in it per year?[/vinny]
My wife put a cap on my plaid shirts, but that probably doesn’t count.

[jhogue]

[vinny] Is there any other investment wherein you are limited to how much you can invest in it per year?[/vinny]
The following type of accounts have annual limits:
Traditional IRA, Roth IRA, SEP IRA, 401k, 403b, 457b. The FDIC also has limits coverage of individual accounts and CD purchases.

Warren Buffet has not to my knowledge revealed whether or not he holds I-bonds. If he does, they are certainly a minuscule portion of his investment portfolio.

[vnatale]

“Tiny portion of a portfolio of material size”

How do you define a portion of material size?

Over what investing horizon?

Yeah, if given a lump sum of $10M

But if investing over time, $10k/year == $100k + interest, so after 10 years == 10% of a $1m portfolio

Have a spouse, can get to 20% of that in 10 years

Or 10% of $2m; 40% of the cash portion of the PP

But, yeah, once over $4m, gets to 5% or less

Limit should be indexed to inflation

If the $1,000,000 investment was static throughout those 10 years then it'd only be an average of 5% of the portfolio.

[vnatale]

[vinny] Is there any other investment wherein you are limited to how much you can invest in it per year?[/vinny]
The following type of accounts have annual limits:
Traditional IRA, Roth IRA, SEP IRA, 401k, 403b, 457b. The FDIC also has limits coverage of individual accounts and CD purchases.

Warren Buffet has not to my knowledge revealed whether or not he holds I-bonds. If he does, they are certainly a minuscule portion of his investment portfolio.

All those retirement vehicles are just that. Retirement vehicles. All the investments you make in them can me make outside of retirement vehicles and, therefore, unlimited.

The FDIC limits coverages are not a comparison.

[jhogue]

[vinny] Is there any other investment wherein you are limited to how much you can invest in it per year?[/vinny]
The following type of accounts have annual limits:
Traditional IRA, Roth IRA, SEP IRA, 401k, 403b, 457b. The FDIC also has limits coverage of individual accounts and CD purchases.

Warren Buffet has not to my knowledge revealed whether or not he holds I-bonds. If he does, they are certainly a minuscule portion of his investment portfolio.

All those retirement vehicles are just that. Retirement vehicles. All the investments you make in them can me make outside of retirement vehicles and, therefore, unlimited.

The FDIC limits coverages are not a comparison.

Vinny,
1. What you wrote is simply not true. One example will suffice: The 457b account that I once held was constructed by its parent company, Prudential Insurance, to include a stable value fund composed of short term insurance contracts drawn from Prudential's own extensive pool of such contracts. This stable value fund was exclusively available to 457b account holders whose employers had investment plans with Prudential.

2. When are you going to address Dieter and dualstow's questions?

[vnatale]

[vinny] Is there any other investment wherein you are limited to how much you can invest in it per year?[/vinny]
The following type of accounts have annual limits:
Traditional IRA, Roth IRA, SEP IRA, 401k, 403b, 457b. The FDIC also has limits coverage of individual accounts and CD purchases.

Warren Buffet has not to my knowledge revealed whether or not he holds I-bonds. If he does, they are certainly a minuscule portion of his investment portfolio.

All those retirement vehicles are just that. Retirement vehicles. All the investments you make in them can me make outside of retirement vehicles and, therefore, unlimited.

The FDIC limits coverages are not a comparison.

Vinny,
1. What you wrote is simply not true. One example will suffice: The 457b account that I once held was constructed by its parent company, Prudential Insurance, to include a stable value fund composed of short term insurance contracts drawn from Prudential's own extensive pool of such contracts. This stable value fund was exclusively available to 457b account holders whose employers had investment plans with Prudential.

2. When are you going to address Dieter and dualstow's questions?

1. I should further refine my statement. What other investment that is eligible to be purchased by any American has annual investment amount limitations?

We are mostly Americans here. We discuss iBonds and other investments that any of us can buy. Is there another one wherein there is an annual limit to which each of us can buy (as a single person)?

What is a material amount?

Assume someone who has newly discovered iBonds at the age of 60 already has a $500,000 portfolio. Putting aside the additional $5,000 in purchases one can do via a tax return refund and which seems to be total hit or miss then the annual limit is $10,000 (again, as single person).

After the first year's $10,000 purchase, iBonds would represent 2% of the portfolio. If the person did 9 more $10,000 amounts, the iBonds investment would be $100,000 by the age of 70.

If the person earned an average of 5% per year on the portfolio (not including the iBond investments) it would have grown to about $815,000 by age 70.

The average portfolio balance for that ten years would be about $650,000 while the average iBonds balance for that ten years would be $50,000. Therefore bonds would represent 7.6% of the total portfolio (actually less if I counted the iBond investment as part of the overall portfolio, which I did not). And, of course, if the portfolio was larger than $500,000 at the beginning, that percentage would be even lower.


Have I answered all questions?

[jhogue]

Vinny,
If you are REALLY SERIOUS about increasing your I-bond holdings, there are several steps you can take:
1. Get a revocable trust and put another $10K into I-bonds each year. That alone would increase your annual acquisition by 100%.
2. Engage a trusted partner or relative and utilize the "gift box" strategy described by the finance buff. That would let you participate more aggressively in today's record high I-bond interest rates.
3. Extend the 10 year time horizon of your hypothetical investor. I-bonds have 30 year tax deferral, not 10 years. They get better with age because of their federal tax deferral and semi-annual interest rate compounding.

I-bonds can't make you rich quick, but they will make your Deep Cash more safe, more liquid, and better yielding when compared with Harry Browne's original prescription of a Treasury money market fund or other cash alternatives, such as bank CDs, Treasury ladders, or so-called "high yield savings accounts."

[Mountaineer]

I'm sure iBonds play an important role for those in the accumulation phase of life. What do you all think are best ways in high inflation periods to hold assets for those old geezers like me who aren't employed and are well into the distribution phase and primarily just want to minimize risk and keep what I worked very hard to get?

[Xan]

I'm sure iBonds play an important role for those in the accumulation phase of life. What do you all think are best ways in high inflation periods to hold assets for those old geezers like me who aren't employed and are well into the distribution phase and primarily just want to minimize risk and keep what I worked very hard to get?

I-bonds are paying 9+% no matter how old you are, aren't they?

[Mountaineer]

I'm sure iBonds play an important role for those in the accumulation phase of life. What do you all think are best ways in high inflation periods to hold assets for those old geezers like me who aren't employed and are well into the distribution phase and primarily just want to minimize risk and keep what I worked very hard to get?

I-bonds are paying 9+% no matter how old you are, aren't they?

Thanks for responding. Yes. But when you consider my age, life expectancy, and amounts of iBonds I can purchase it’s hardly worth the even minimal effort. Would likely just complicate things for my executor and I’m not sure significant value would result for beneficiaries. Who knows, it’s a crap shoot.

[vnatale]

I'm sure iBonds play an important role for those in the accumulation phase of life. What do you all think are best ways in high inflation periods to hold assets for those old geezers like me who aren't employed and are well into the distribution phase and primarily just want to minimize risk and keep what I worked very hard to get?

I-bonds are paying 9+% no matter how old you are, aren't they?

Thanks for responding. Yes. But when you consider my age, life expectancy, and amounts of iBonds I can purchase it’s hardly worth the even minimal effort. Would likely just complicate things for my executor and I’m not sure significant value would result for beneficiaries. Who knows, it’s a crap shoot.

I will later reply to jhogue's excellent suggestions to me but iBonds while great are not so great when you are no longer accumulating but have accumulated a lot and are in your distribution phase.

[barrett]

I have embraced the I-bond “gift box” strategy. For 2022, we maxed out I-bonds at a guaranteed annualized rate of 7.12%/9.62%. I then bought $10K each as 2023 gifts for my wife and I in the week before the 1 May 2022 rate re-set, also at 7.12%/9.62%. After the 1 May re-set I bought yet another $10K each as 2024 gifts for my wife and I. All of the out-year I-bond purchases are guaranteed to return 9.62% for at least six months.
For more detail on the I-bond gift strategy see:
The Finance Buff
https://thefinancebuff.com/buy-i-bonds-as-gift.html

Thanks for introducing me to this idea, jhogue. My wife and I gifted each other $10K of I-Bonds at the end of May. As we discussed, I was hesitant to add complexity to our investments but have this all written down and explained for my wife. I'm probably done with buying I-Bonds as my taxable account is rather I-Bond heavy already. But it may make sense for my younger wife to buy them for a few more years (just not in a year when she "receives" her gifted bonds).

[joypog]

But it may make sense for my younger wife to buy them for a few more years (just not in a year when she "receives" her gifted bonds).

What does your older wife think about not recieving an i-bond gift?

[jhogue]

@ barrett:
Buying I bonds does add a layer of complexity to the Permanent Portfolio. It is more complicated to manage than Uncle Harry's simple prescription of a Treasury money market fund for Cash. The tradeoff is that I-bonds offer a better yield with no more risk than a 1 year Treasury and no more il-liquidity than a 1 year CD. Too many investors, even in this forum, seem blindly eager to hunt for yield by taking on more risk. In today's fixed income market, I-bonds are free money whether you hold them for 11 months + 1 day or 30 years.

[barrett]

But it may make sense for my younger wife to buy them for a few more years (just not in a year when she "receives" her gifted bonds).

What does your older wife think about not recieving an i-bond gift?

Let’s just say that having my own polygamist cult has its advantages when it comes to skirting the I-Bond purchase limits! All my sister wives and our 42 kids have multiple social security numbers and that helps. So far this year we have purchased $8,000,000 in I-Bonds!

[jhogue]

@ barrett:
You get my vote for I-bond workaround of the year.

[Mountaineer]

But it may make sense for my younger wife to buy them for a few more years (just not in a year when she "receives" her gifted bonds).

What does your older wife think about not recieving an i-bond gift?

Let’s just say that having my own polygamist cult has its advantages when it comes to skirting the I-Bond purchase limits! All my sister wives and our 42 kids have multiple social security numbers and that helps. So far this year we have purchased $8,000,000 in I-Bonds!

I knew there was something special about Barrett. I shudder to think of the college bill for those 42 kids though.

No worries, the Dems feeding trough will cover it. Just move to Mexico a bit before the first needs to enroll, then sneak back into Kalipornia at the opportune time. ‍

[joypog]

Interesting podcast from Animal Spirits about inflation and commodities as a hedge.
https://animalspiritspod.libsyn.com/tal ... -inflation

The guest's contention is that Gold is a good hedge against US Dollar Debasement inflation but does not do well against the Scarcity inflation that we are experiencing today.

I'm not sure what to think of it, but it sounds truthy....but then again anything that a slick financial guy says invariably sounds truthy.

[GT]

Interesting podcast from Animal Spirits about inflation and commodities as a hedge.
https://animalspiritspod.libsyn.com/tal ... -inflation

The guest's contention is that Gold is a good hedge against US Dollar Debasement inflation but does not do well against the Scarcity inflation that we are experiencing today.

I'm not sure what to think of it, but it sounds truthy....but then again anything that a slick financial guy says invariably sounds truthy.

Did the guest speaker try and pitch anything at the end of the talk?

Example: Gold is great but the XYZ commodities fund has beaten Gold over the last 6 months.... etc.