I Bonds for Permanent Portfolio

[mathjak107]

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

I don’t want to send more money to any more non local accounts then I have to or deal with more 1099s. Plus We have multiple sheets We keep for the kids to know what’s what in case of a common death in an accident which has to keep being changed .

Then the account has to be linked to other accounts to get the money to and fro..

Not worth it when I can go to citi bank and get 1500 bucks in one shot on 100k for a few months or 800 on 50k

[barrett]

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

Exactly! It's a piece of cake.

For most of us who are into personal finance (I think that's why most of us are here, right?) we feel the little optimizations add up to something worthwhile over time. It's better to own an S&P index fund that has an expense ratio of .04% than one with an expense ratio of .25%. Mathjak's bank scheme sounds like a great hack. We buy the cheapest gas in town. I don't own any exercise machines at home but I pay $100 per year and use the equipment at the gym like a madman, etc., etc.

For many of us sticking a portion of our cash in I-bonds each year is totally worth it.

[Mark Leavy]

For most of us who are into personal finance (I think that's why most of us are here, right?) we feel the little optimizations add up to something worthwhile over time.

<snip>

For many of us sticking a portion of our cash in I-bonds each year is totally worth it.

No opinion on iBonds per se, but I am strongly against the little optimizations.
I think they are a distraction. I call it "optimizing the small". Local Optimizations for the mathematically inclined. They can make you feel like you are optimizing while you are actually doing nothing that will have a real impact on your life. They are a distraction from asking yourself the bigger questions.

1) Should I change jobs?
2) Should I get divorced?
3) Should I live Portugal?
4) Am I situated to handle XYZ catastrophe?
5) Is my health good?

And any number of larger optimization questions. The tiny optimizations are a feel good drug that make you less likely to step back and examine your larger life.

Just my opinion

[barrett]

No opinion on iBonds per se, but I am strongly against the little optimizations.
I think they are a distraction. I call it "optimizing the small". Local Optimizations for the mathematically inclined. They can make you feel like you are optimizing while you are actually doing nothing that will have a real impact on your life. They are a distraction from asking yourself the bigger questions.

< Snip>

All totally valid but for the fact that most of the stuff I am talking about can be done more or less on autopilot. Good financial habits as opposed to obsessing. At least that's what I was trying to get across. Crap, now I am wondering if i should move to Portugal!

[Cortopassi]

It was an easy decision for me and my wife. 20k late last year, 20k early this year, so 40k at 7% for $2800 yearly compared to the money previously sitting in an Ally savings account at 0.5% for $200 a year.

And it did take <10 minutes.

But I certainly understand not wanting to open up more accounts.

[yankees60]

FINALLY asking an at about six month old question regarding iBonds.

I filed my 2020 tax return on May 15, 2021. I realized the mistake(s) I'd made on my 2019 so that instead of my $5,000 refund going toward purchasing iBonds it was sent to me as a refund. I thought that I had done all correctly on my 2020 tax return.

I did recount here how a lot of time passed from that May 15th with nothing happening. No refunds. No iBonds purchased.

However, some day last summer I went to my mailbox and it looked like I was again getting a refund. But, WAIT! iBonds HAD been purchased.

But they came in 12 (!!!!!!) envelopes.

Four of them were $1,000 bonds. One was $500. One was $200. Then the remaining six were 50 each. So I DID get $5,000 in total.

But is this the normal way to get them? I guess they are all denominated in nothing bigger than $1,000? If so, why did I not just get five $1,000 bonds?

Finally, most importantly, what do I do with these paper bonds?

I do not yet have a bank box. They are just sitting here. What happens if they were lost or destroyed? I assume that they are NOT just like cash? They are all recorded somewhere as belonging to me?

What can I do to get rid of them by getting them converted to electronic form (just like my annual $10,000 purchases)?

[drumminj]

No opinion on iBonds per se, but I am strongly against the little optimizations.
I think they are a distraction. I call it "optimizing the small". Local Optimizations for the mathematically inclined. They can make you feel like you are optimizing while you are actually doing nothing that will have a real impact on your life. They are a distraction from asking yourself the bigger questions.

I don't disagree with your perspective (from a math perspective, the local maximum may be far lower than the global maximum), however if one has already resolved what they believe are the bigger questions, then optimizing what you're categorizing the "smaller" items is the best one can do.

There are many decisions I could make to make more money, have a lower cost of living, etc. However, given some of the major decisions I've made (life partner, location, choice of life I want to live - land, animals, etc), the best I can do is optimize within those constraints. You may consider those "small", but that doesn't mean it's not worth _my_ time at this point.

All that said, I agree with you that one should be mindful of the challenge you make -- am I optimizing at the right level? (being a software engineer, optimizing an n^2 algorithm is a waste of time vs finding an O(n) or O(nlogn) algorithm)

[Xan]

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.

jhogue, I owe you an apology; I thought you had misinterpreted Mathjak but it seems that I was the one who had done so!

But I will say that everyone has their own threshold for what's worth the trouble and what isn't. At some point (IMHO) you have enough money that you are willing to exchange some of it for time, in the form of (let's say) not clipping coupons, or paying somebody to do the yard work, or what have you.

I do believe that I-bonds for PP cash are a no-brainer.

[jhogue]

FINALLY asking an at about six month old question regarding iBonds.

I filed my 2020 tax return on May 15, 2021. I realized the mistake(s) I'd made on my 2019 so that instead of my $5,000 refund going toward purchasing iBonds it was sent to me as a refund. I thought that I had done all correctly on my 2020 tax return.

I did recount here how a lot of time passed from that May 15th with nothing happening. No refunds. No iBonds purchased.

However, some day last summer I went to my mailbox and it looked like I was again getting a refund. But, WAIT! iBonds HAD been purchased.

But they came in 12 (!!!!!!) envelopes.

Four of them were $1,000 bonds. One was $500. One was $200. Then the remaining six were 50 each. So I DID get $5,000 in total.

But is this the normal way to get them? I guess they are all denominated in nothing bigger than $1,000? If so, why did I not just get five $1,000 bonds?

Finally, most importantly, what do I do with these paper bonds?

I do not yet have a bank box. They are just sitting here. What happens if they were lost or destroyed? I assume that they are NOT just like cash? They are all recorded somewhere as belonging to me?

What can I do to get rid of them by getting them converted to electronic form (just like my annual $10,000 purchases)?

Vinnie:
1. Treasury guarantees the replacement of paper savings bonds that are lost, stolen, or destroyed. See TreasuryDirect.gov FAQs.

2. You can convert paper savings bonds to your online TreasuryDirect.gov account. See TreasuryDirect.gov FAQs.

[yankees60]

FINALLY asking an at about six month old question regarding iBonds.

I filed my 2020 tax return on May 15, 2021. I realized the mistake(s) I'd made on my 2019 so that instead of my $5,000 refund going toward purchasing iBonds it was sent to me as a refund. I thought that I had done all correctly on my 2020 tax return.

I did recount here how a lot of time passed from that May 15th with nothing happening. No refunds. No iBonds purchased.

However, some day last summer I went to my mailbox and it looked like I was again getting a refund. But, WAIT! iBonds HAD been purchased.

But they came in 12 (!!!!!!) envelopes.

Four of them were $1,000 bonds. One was $500. One was $200. Then the remaining six were 50 each. So I DID get $5,000 in total.

But is this the normal way to get them? I guess they are all denominated in nothing bigger than $1,000? If so, why did I not just get five $1,000 bonds?

Finally, most importantly, what do I do with these paper bonds?

I do not yet have a bank box. They are just sitting here. What happens if they were lost or destroyed? I assume that they are NOT just like cash? They are all recorded somewhere as belonging to me?

What can I do to get rid of them by getting them converted to electronic form (just like my annual $10,000 purchases)?

Vinnie:
1. Treasury guarantees the replacement of paper savings bonds that are lost, stolen, or destroyed. See TreasuryDirect.gov FAQs.

2. You can convert paper savings bonds to your online TreasuryDirect.gov account. See TreasuryDirect.gov FAQs.

Thanks for this. Any idea why they came in 12 separate bonds in 12 separate envelopes? Is that normal?

[barrett]

Thanks for this. Any idea why they came in 12 separate bonds in 12 separate envelopes? Is that normal?

Don't know about the 12 envelopes but Bogleheads often post about getting a bunch of smaller bonds.

ALSO, if you are going to delay converting these to electronic bonds, make sure you write down all the serial numbers and keep that list in a different place than you keep the bonds.

[yankees60]

Thanks for this. Any idea why they came in 12 separate bonds in 12 separate envelopes? Is that normal?

Don't know about the 12 envelopes but Bogleheads often post about getting a bunch of smaller bonds.

ALSO, if you are going to delay converting these to electronic bonds, make sure you write down all the serial numbers and keep that list in a different place than you keep the bonds.

I've been extremely casual about the whole thing.

I did not even open the envelopes until a few weeks after I received them.

It took me months on end to finally ask the above questions.

Thanks for your exhortation. I will make it a priority to get all those bonds with their serial numbesr entered into my beloved Quicken (which I have used in every way since January 1, 1994. And, which I have gradually been entering my prior spending which I have records for going back to January 1, 1969. I think I am somewhere in 1973 in that long-term catch-up project.).

[dualstow]

mathjak wrote
Personally I take advantage of local bank deals which are pretty good and I can deal with larger amounts of cash in one shot .

i moved Bank Bonus stuff to its own thread in the cash portion ⇢ viewtopic.php?f=4&t=12472

// DS

In one mixed post that got moved there, jhogue noted, as an i-bonds vs bank point,

U.S. savings bonds have never charged a fee or commission for purchase or sale.

[barrett]

I spent five minutes total buying my wife's annual allotment of I-Bonds yesterday on the "clunky" TD website. Still evaluating if my side of the ledger is maybe too I-Bond heavy already and may skip it this year. But that 7.12% for six months is psychologically tempting!

[jhogue]

@barrett,
1. Good for you! Buying I-bonds is not complicated or time-consuming for most investors.

2. I may not buy I-bonds this year either. More than 40% of my Cash is currently in savings bonds. That "feels" about right. Half of those are more than 5 years old, and would therefore not incur any penalty if I redeemed them. The balance of my Cash quadrant is in FDLXX, Fidelity's all-Treasury money market fund, which is stable, liquid, and risk-free.

3. There is nothing wrong with trimming your I-bond allocation in this or any other given year. Alternately, you could wait until the new set of CPI figures is announced in late April in advance of the 1 May interest rate reset. At this time, I see little likelihood that the new interest rate will be much different than the current 7.12%, but you never know until it happens.

[Xan]

@barrett,
1. Good for you! Buying I-bonds is not complicated or time-consuming for most investors.

2. I may not buy I-bonds this year either. More than 40% of my Cash is currently in savings bonds. That "feels" about right. Half of those are more than 5 years old, and would therefore not incur any penalty if I redeemed them. The balance of my Cash quadrant is in FDLXX, Fidelity's all-Treasury money market fund, which is stable, liquid, and risk-free.

3. There is nothing wrong with trimming your I-bond allocation in this or any other given year. Alternately, you could wait until the new set of CPI figures is announced in late April in advance of the 1 May interest rate reset. At this time, I see little likelihood that the new interest rate will be much different than the current 7.12%, but you never know until it happens.

jhogue,

I'm curious as to what downside you see of having well more than 40% of your cash in I-bonds?

[jhogue]

There are a couple of scenarios:

1. The biggest caution in overbuying savings bonds is having a liquidity crunch and not being able to redeem your bonds because of the 1-year lock up. I think this would be more of a concern for young investors with smaller portfolios who might suddenly need to buy a car or put a down payment on a house, for instance.

2. Within the HBPP, you should technically keep enough liquid cash on hand to cover a re-balance event. That might force you to sell your savings bonds at an inopportune moment. I think the likelihood of this is not large, but it is a feature of the overall design of the portfolio.

[Xan]

There are a couple of scenarios:

1. The biggest caution in overbuying savings bonds is having a liquidity crunch and not being able to redeem your bonds because of the 1-year lock up. I think this would be more of a concern for young investors with smaller portfolios who might suddenly need to buy a car or put a down payment on a house, for instance.

2. Within the HBPP, you should technically keep enough liquid cash on hand to cover a re-balance event. That might force you to sell your savings bonds at an inopportune moment. I think the likelihood of this is not large, but it is a feature of the overall design of the portfolio.

Yes, if you might need the cash within the one year window, that makes sense.

I'm not sure about #2: I consider my greater-than-year-old I-bonds to be (almost) entirely liquid. If I need to rebalance out of cash, I'll cash out the bonds. Why give up the tremendous interest in exchange for the minor hassle of needing to sell.

[jhogue]

There are a couple of scenarios:

1. The biggest caution in overbuying savings bonds is having a liquidity crunch and not being able to redeem your bonds because of the 1-year lock up. I think this would be more of a concern for young investors with smaller portfolios who might suddenly need to buy a car or put a down payment on a house, for instance.

2. Within the HBPP, you should technically keep enough liquid cash on hand to cover a re-balance event. That might force you to sell your savings bonds at an inopportune moment. I think the likelihood of this is not large, but it is a feature of the overall design of the portfolio.

Yes, if you might need the cash within the one year window, that makes sense.

I'm not sure about #2: I consider my greater-than-year-old I-bonds to be (almost) entirely liquid. If I need to rebalance out of cash, I'll cash out the bonds. Why give up the tremendous interest in exchange for the minor hassle of needing to sell.

If you keep sufficient funds in a Treasury money market funds, there would be no tax consequences in conducting a re-balance out of Cash and into one of the volatile assets. If you had a large enough portfolio and all of your Cash was in I-bonds, you could incur an unexpected tax bill when you redeemed them.

[Xan]

There are a couple of scenarios:

1. The biggest caution in overbuying savings bonds is having a liquidity crunch and not being able to redeem your bonds because of the 1-year lock up. I think this would be more of a concern for young investors with smaller portfolios who might suddenly need to buy a car or put a down payment on a house, for instance.

2. Within the HBPP, you should technically keep enough liquid cash on hand to cover a re-balance event. That might force you to sell your savings bonds at an inopportune moment. I think the likelihood of this is not large, but it is a feature of the overall design of the portfolio.

Yes, if you might need the cash within the one year window, that makes sense.

I'm not sure about #2: I consider my greater-than-year-old I-bonds to be (almost) entirely liquid. If I need to rebalance out of cash, I'll cash out the bonds. Why give up the tremendous interest in exchange for the minor hassle of needing to sell.

If you keep sufficient funds in a Treasury money market funds, there would be no tax consequences in conducting a re-balance out of Cash and into one of the volatile assets. If you had a large enough portfolio and all of your Cash was in I-bonds, you could incur an unexpected tax bill when you redeemed them.

Why not just redeem more in order to pay the taxes? Surely it's better to have gains and pay taxes on them than to avoid taxes by having no gains to pay taxes on.

[yankees60]

Why not just redeem more in order to pay the taxes? Surely it's better to have gains and pay taxes on them than to avoid taxes by having no gains to pay taxes on.

Somewhat the same as when Technovelist pronounced me a terrible accountant because I'd told a business owner that it was a GOOD thing that he'd have to pay a lot of taxes because that meant correspondingly that he'd have had a HUGE income.

[jhogue]

I-bonds are tax deferred but can never be held in a tax deferred account. A Treasury money market fund can be held in a tax deferred account. Selling a big pile of I-bonds is therefore always a taxable event. Selling a Treasury money market fund inside a tax deferred account is never a taxable event. Depending upon your marginal tax bracket and the age of your I-bonds, you might want to conduct a re-balance inside a tax deferred account, like an IRA, in which case you could pay no taxes at all.

[Pet Hog]

But that 7.12% for six months is psychologically tempting!

At this time, I see little likelihood that the new interest rate will be much different than the current 7.12%, but you never know until it happens.

The new I-Bond rate will be set on May 1, using the CPI-U numbers from September 2021 (274.310) and March 2022. We still have two months to go, but using the latest value from January 2022 (281.148) already gives a variable rate of about 5%. Assuming consumer prices stay steady for the next two months, anyone buying I-Bonds before May 1 would get 7.12% for six months and then 5% for the following six months, so about 6% for the year. Selling then, incurring a three-month penalty, would mean about 4.8% for the year.

Tell me if this makes sense. If you're going to hold for only a year then I suggest buying next month (March 31), not today (February 28), because March 31 (this year) to March 1 (next year) is 335 days, whereas February 28 (this year) to February 1 (next year) is 338 days, so you would get your money back three days sooner but receive the same amount of interest. Ha! Waiting a month will also give you a better idea of what the new variable rate will be (one more month of CPI-U data). Using this (perverse?) logic, March 31 and October 31 (the ends of the 31-day months closest to May 1 and November 1) are the best days to buy I-Bonds, if you're going to hold for just one year. But please check the calendar to factor in the effects of weekends and leap years!

[jhogue]

Go for it.
Right now, I-bonds beat everything on the Treasury interest rate curve from 11 months to 30 years. On top of that, you can change your mind 11 months from now (sort of like a 1 year CD) and get your principal and interest back.

[yankees60]

I was helping a friend last night with logins for him and his wife to Treasury Direct to view their iBond purchases.

Each time it was two factor authorization. I assume this will be the same going forward. For how long has it been like that?