New kind of "Play Money" I bonds

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peakbagger

Minister of Fire
Jul 11, 2008
8,838
Northern NH
When filling out taxes this year I ended up with the Fed owing me money. It been years since I have not owed but I had an unusual tax year (two federal EV credits). Starting this year instead of getting a check there is an open to buy I bonds. I elected to get paid with I Bonds. I bonds are savings bonds whose interest rate is tied to inflation. Right now they are paying 7.12%. Every 6 months the rate changes. I was thinking I would just get a book entry account, but a bunch of envelopes showed up in the mail with real live paper I bonds. I got a bunch of Helen Kellers ($50), a couple Chief Joseph's ($200) and an Eistein ($1000). At first glance I thought the Helen Kellers were a Hillary Clinton ;) https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibondslooklike.htm

I thought the treasury had phased out the actual paper bonds as if they are bought direct, I think the only option is by book entry. They are not bearer bonds, only I can cash them as they have my name and info on them.

Still, something I have never seen before.
 
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peakbagger said:
When filling out taxes this year I ended up with the Fed owing me money. It been years since I have not owed but I had an unusual tax year (two federal EV credits). Starting this year instead of getting a check there is an open to buy I bonds. I elected to get paid with I Bonds. I bonds are savings bonds whose interest rate is tied to inflation. Right now they are paying 7.12%. Every 6 months the rate changes. I was thinking I would just get a book entry account, but a bunch of envelopes showed up in the mail with real live paper I bonds. I got a bunch of Helen Kellers ($50), a couple Chief Joseph's ($200) and an Eistein ($1000). At first glance I thought the Helen Kellers were a Hillary Clinton ;) https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibondslooklike.htm

I thought the treasury had phased out the actual paper bonds as if they are bought direct, I think the only option is by book entry. They are not bearer bonds, only I can cash them as they have my name and info on them.

Still, something I have never seen before.
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We got some when they came out in November. Ours are not paper bonds, everything in the account is online. IIRC this was an option when setting up the account, but now you have piqued my curiosity. I will go back and check.
 
What is the yield on them? A high rate gets eaten up with people driving up the price to get the rate.
 
Currently it's 7%. The rate will be reevaluated around May I think.
 
Unlike a standard bond, the interest rate changes on every I bond every 6 months. So unlike a regular bond fund, there is no playing the yield difference in what is in the fund and what is on the street.
 
Humm. Sounds like a fun idea. We will only get back 500 bucks.
 
So a Marshall or 2 Chief Josephs and 2 Hellen Kellers. Just keep in mind you cannot cash them in for a year and for the first five years if you cash them in you lose the last three months interest.
 
peakbagger said:
So a Marshall or 2 Chief Josephs and 2 Hellen Kellers. Just keep in mind you cannot cash them in for a year and for the first five years if you cash them in you lose the last three months interest.
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Even losing the last three months of interest should still keep you ahead of the 0.5% interest rate you would get in a typical savings account if you just keep the bond for 4 months or more right?

My problem with I-bonds is the stupid low limit of 10k per year per SSN, (this refund trick is on top of that). The juice ain't worth the squeeze to use these I-bonds for us.
 
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I agree but. I do know several people who are very conservative and "ladder" CDs. I Bonds are lot better than that option.
 
I could go for some Sparks, but i'm a stock guy. Long term is much better for stocks. But for some Capital preservation Spark me up!

Edit: Whoops i see they threw water on the Sparks.
 
peakbagger said:
I agree but. I do know several people who are very conservative and "ladder" CDs. I Bonds are lot better than that option.
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Yes. Even though the amount is low, we will still invest in them. Between my wife and me that's 20k. She is ultra-conservative to the point of losing money due to inflation in "safe" investments so they are a good vehicle for her. If nothing else it diversifies her portfolio. This year she has some 3yr 3% CDs that are coming to term so that money will go into the next round of I bonds. This is also a good vehicle for young people starting off that don't have a 401k and aren't comfortable gambling on the market. Right now, with the potential for a recession looming, there aren't a lot of great choices.
 
Check the historic rates. It is based on inflation so the past rates have been quite low, with this recent high inflation the rate has been driven up substantially but if / when inflation levels off or perhaps contracts in the next year or 2 or 3 the rate will collapse.
 
It's a new instrument, so no history, but if you mean inflation rates, I hope that is the case actually. We'll see. The bailout cost after the first year is not egregious. We invested in real estate during the Reagan hyperinflation years and that worked out well for us.
 
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begreen said:
Yes. Even though the amount is low, we will still invest in them. Between my wife and me that's 20k. She is ultra-conservative to the point of losing money due to inflation in "safe" investments so they are a good vehicle for her. If nothing else it diversifies her portfolio. This year she has some 3yr 3% CDs that are coming to term so that money will go into the next round of I bonds. This is also a good vehicle for young people starting off that don't have a 401k and aren't comfortable gambling on the market. Right now, with the potential for a recession looming, there aren't a lot of great choices.
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My wife sounds the same, she picked the guaranteed 3% return vs, mutual fund choices for her IRA.

But i disagree completely about I bonds being good for young people. Their time horizon is so much longer so stocks are the best by far way to go. Set up a Roth IRA and just buy Spy, IWM, Dow or individual stocks. The Roth is almost No risk as you can take your original investment amounts out without penalty.

Real estate also an excellent investment for the long haul, but it's not no work. Been a small time landlord for 35 years. I've bought at Highs 1987, and rode thru 15 years to get back to break even (also took loss 100K+ on 1 house as i could not pay the 16% interest rate) and bought at low in 2009. Oddly enough buying at the low was scariest purchase i ever made as at the time i thought that the price could be cut in 1/2 from where i bought it. Thankfully that didn't happen.
 
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begreen said:
It's a new instrument, so no history, but if you mean inflation rates, I hope that is the case actually. We'll see. The bailout cost after the first year is not egregious. We invested in real estate during the Reagan hyperinflation years and that worked out well for us.
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I must have been looking at the EE historic rates? Are they similar in their rate calculation structure?

This is the chart i was referencing.
 
I think the market is seriously overheated. It would not surprise me if we saw a 30-40% correction in the next year or two. This doesn't feel like a good time to jump in for a new investor.

bigealta said:
I must have been looking at the EE historic rates? Are they similar in their rate calculation structure?
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No, it's a different instrument altogether. 5 yr term.
 
begreen said:
I think the market is seriously overheated. It would not surprise me if we saw a 30-40% correction in the next year or two. This doesn't feel like a good time to jump in for a new investor.


No, it's a different instrument altogether. 5 yr term.
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Could be but no one will tell you when we hit a bottom, and you will be to scared to invest then and will miss it. Over the long term 15-40 years the market should be higher by quite a bit. Timing is almost impossible. Invest a bit at a time to minimize risk.

Did you invest on Mar 22, 2020? Nope neither did i, but i did a couple weeks before and some during the few weeks after. It was very scary, but that's when you need to pull the trigger. I also invested at much higher prices than now and those investments were more "comfortable" which is usually not the right time to buy (they have lost value). Point is timing is just to hard even the pro's get it wrong more than they get it right. So a little bit over time seems the safest way to get solid results.
 
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bigealta said:
Could be but no one will tell you when we hit a bottom, and you will be to scared to invest then and will miss it.
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I've been through this rodeo a few times already. I pulled out before the dot.com bust and you are right, I didn't get back in quick enough. Selling my Apple shares at $19 in retrospect is painful. However, I pulled back in 2007 too and investments made in 2009 worked out very well. That said most of my investments at this point in life are dividend-based, irrespective of market value.
 
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Back to I Bond.
Looks like this would have had (if available back then) a 0-2% interest rate over about the last 10 years, with the last 1 1/2 years moving up in steps to the now 7 Ish %. It's 100% tied to the inflation rate, with 0% added to the inflation rate to calculate the interest rate. I'm assuming if inflation goes negative so will the interest rate. I did not see if there is a minimum floor for the interest rate?

Could be an ok short term investment. But be ready to dump it.
 
That is why I have Vanguard handle my accounts. They have a lot better chance of timing investments than I do.
 
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bigealta said:
Back to I Bond.
Looks like this would have had (if available back then) a 0-2% interest rate over about the last 10 years, with the last 1 1/2 years moving up in steps to the now 7 Ish %. It's 100% tied to the inflation rate, with 0% added to the inflation rate to calculate the interest rate. I'm assuming if inflation goes negative so will the interest rate. I did not see if there is a minimum floor for the interest rate?

Could be an ok short term investment. But be ready to dump it.
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These were attractive to me 10 weeks ago. I’m not sure today. From what I have read odds of a recession are increasing. It’s a gamble. Probably not low enough risk now to entice me over a mutual fund.
 
peakbagger said:
That is why I have Vanguard handle my accounts. They have a lot better chance of timing investments than I do.
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Sometimes yes, sometimes no. Their bond fund misguessed the market this year and I think is down by about 10%? Their inflation-protected fund is not keeping up either. I have a friend that has is IRA exclusively in Vanguard funds and was griping just a couple days ago about his losses this year. Blamed it on the administration which has little to do with the whims of the stock market. In the same time period, we have gained a little and have received some nice dividends that keep accruing. This is a crazy time for investments.
 
Hindsight is 20/20. I really do not look at anything much shorter than 5 year performance.
 
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peakbagger said:
That is why I have Vanguard handle my accounts. They have a lot better chance of timing investments than I do.
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Vanguard's crystal ball is no better than anybody else's. There is always some expert claiming the maret will rally while another claims it will crash. Nobody knows with any certainty what the market will do which is why we can only do our best based on past statistics. I'm sure you've all heard the story that the best performing accounts are those owned by dead people.

All to say, time in the market beats timing the market.
bigealta said:
The Roth is almost No risk as you can take your original investment amounts out without penalty.
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The roth investment vehicle has nothing at all to do with risk. You can invest in almost anything with a roth and you can lose it all, including your original investment amount.
 
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Indeed you can loose your principal as easily in a pre-tax account as in a post tax account.
 
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