What is second safest investment after Series I Savings Bonds

[jnw]

With current inflation rate of 7%-8% right now these Series I Savings Bonds I recently learned about  are a blessing!   I am going to max that $10k out this year.

I'll have about another $8k to invest each year and am wondering what is currently the next best low risk investment?--excluding stocks/VTI/VTSAX/etc..

Maybe I should instead setup a revocable trust, which I believe allows me to add up to another $10k per year into Series I Savings Bonds.

What's nice about these Series I Savings Bonds is, say you have $100k in them over a 5 year period, and then say 6 years from now there is a major stock market crash when it drops 30-50%.  You could then redeem all those bonds and take the $110k (or so depending on interest accumulated) and buy up VTI at huge discounts. Then with any luck the panic will reverse a short time later and climb say 50-75%.   I like how the cash doesn't erode with I-Bonds so if you do want to try timing the market you don't get penalized so badly.

[vand]

There is no such thing as a safe investment. If you want return you must take risk. You can't have one without the other, and that includes iBonds (inflation can always go higher, Governments can always default).

[jnw]

There is no such thing as a safe investment. If you want return you must take risk. You can't have one without the other, and that includes iBonds (inflation can always go higher, Governments can always default).

If inflation goes higher so does the rate for i-Bonds.  I don't believe the USA will default, not in my lifetime.  You can't lose money on I-Bonds even if there is deflation.. protected against that.   Seems very safe to me.

[MustacheAndaHalf]

"Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially Treasury bills) are considered to be risk-free because the "full faith and credit" of the U.S. government backs them."
https://www.investopedia.com/terms/r/riskfreeasset.asp

[MustacheAndaHalf]

In a crash, series I bonds don't change their value.  Other US Treasury bonds will probably become more valuable as large numbers of investors sell stock and buy bonds.  When that happens, a regular treasury bond will profit where a series I bond does not.  (On the flip side, when yields rise... AGG + BND are both -4% YTD).

[jnw]

What do you think about sumplementing I-Bonds investment during this inflationary period, with something like TIPS?  e.g. Vanguard VTIP ETF?

I tried watching some videos about TIPS and it totally confusing.. obscure investment to me at this point.   Seems like someone could present TIPS better so it makes sense.  I'll keep watching more videos to try and understand it.

[vand]

There is no such thing as a safe investment. If you want return you must take risk. You can't have one without the other, and that includes iBonds (inflation can always go higher, Governments can always default).

If inflation goes higher so does the rate for i-Bonds. I don't believe the USA will default, not in my lifetime.  You can't lose money on I-Bonds even if there is deflation.. protected against that.   Seems very safe to me.

You sure about that?

iBonds rates are set twice a year and not tradeable. The rate you get at the start is the rate you get for the life of the bond.

Ask yourself why would the government take from you with one hand with financial repression and negative yielding real interest rates, and then give you a way out of it on the other hand?

[jnw]

There is no such thing as a safe investment. If you want return you must take risk. You can't have one without the other, and that includes iBonds (inflation can always go higher, Governments can always default).

If inflation goes higher so does the rate for i-Bonds. I don't believe the USA will default, not in my lifetime.  You can't lose money on I-Bonds even if there is deflation.. protected against that.   Seems very safe to me.

You sure about that?

iBonds rates are set twice a year and not tradeable. The rate you get at the start is the rate you get for the life of the bond.

Ask yourself why would the government take from you with one hand with financial repression and negative yielding real interest rates, and then give you a way out of it on the other hand?

I have no idea of any of what you are talking about.  Interest rates for Series I Savings Bonds are set twice per year -- on May 1st and Nov 1st.  Current interest rate for the first 6 month period is currently half of 7.12%.  On May 1st, most likely the new interest rate will be higher -- based on the last CPI of 7.8%.

[vand]

There is no such thing as a safe investment. If you want return you must take risk. You can't have one without the other, and that includes iBonds (inflation can always go higher, Governments can always default).

If inflation goes higher so does the rate for i-Bonds. I don't believe the USA will default, not in my lifetime.  You can't lose money on I-Bonds even if there is deflation.. protected against that.   Seems very safe to me.

You sure about that?

iBonds rates are set twice a year and not tradeable. The rate you get at the start is the rate you get for the life of the bond.

Ask yourself why would the government take from you with one hand with financial repression and negative yielding real interest rates, and then give you a way out of it on the other hand?

I have no idea of any of what you are talking about.  Interest rates for Series I Savings Bonds are set twice per year -- on May 1st and Nov 1st.  Current interest rate for the first 6 month period is currently half of 7.12%.  On May 1st, most likely the new interest rate will be higher -- based on the last CPI of 7.8%.

The interest payment is fixed - that why it's called fixed interest!  In normal bonds the yield changes because they are traded in the open market and the bond price can go up and and, but there is no trading market for iBonds like I said, so the bond value and payout will remain whatever it is initially set at.

The payment on newly issued iBonds might change, but not on the ones you currently already have.

[NotJen]

The interest payment is fixed - that why it's called fixed interest!  In normal bonds the yield changes because they are traded in the open market and the bond price can go up and and, but there is no trading market for iBonds like I said, so the bond value and payout will remain whatever it is initially set at.

The payment on newly issued iBonds might change, but not on the ones you currently already have.

That is not true.

I Bonds are composed of two rates - a fixed rate and and inflationary rate.  The fixed rate is 0% for I Bonds purchased right now.  The inflationary rate changes every 6 months.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

[dblaace]

I just started a 1 year auto renew CD ladder. It should benefit in a rising interest market. It's below inflation right now but better than .01 in a cash account.

[maizefolk]

Yup, the total payout for i bonds changes every six months as NotJen explained. Vand is it possible you are thinking of some other financial instrument with the same name in the UK?

The big issue with these is that you owe taxes at your regular marginal tax rates in the interest payments that adjust upward with higher inflation. So while ibonds are definitely better for a high inflation environment than cash sitting in the bank (or under your mattress), net of taxes you’re still losing purchasing power by having money in ibonds.

[Viking Thor]

That's true but there is no state tax and you can choose to recognize all the federal interest income at redemption.

So if you redeem in a year when income is low you can potentially pay zero tax.

Also some prior time periods had a fixed rate so for those years you could slightly beat inflation.

But yes for most people it will lose to inflation at a tiny rate factoring in the tax.

[jnw]

My income is so low I can redeem $11.6k in interest each year (assuming no capital gains or other income) without paying a cent in Federal Taxes :)   So most likely I'd be "interest gains harvesting" these every 5 years -- or however often depending on current interest rates.  So these Series I Savings Bonds seem great for someone primarily on social security income.

[terran]

Correct me if I'm wrong, but can't you also defer taxes on I-Bond interest until you redeem them if you don't want to pay as you go along? Maybe that's some other US Treasury product.

[vand]

Yup, the total payout for i bonds changes every six months as NotJen explained. Vand is it possible you are thinking of some other financial instrument with the same name in the UK?

The big issue with these is that you owe taxes at your regular marginal tax rates in the interest payments that adjust upward with higher inflation. So while ibonds are definitely better for a high inflation environment than cash sitting in the bank (or under your mattress), net of taxes you’re still losing purchasing power by having money in ibonds.

ok, it seems I do stand corrected:

A fixed rate of return which remains the same throughout the life of the I bond

and
A variable inflation rate which we calculate twice a year, based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy (CPI-U for March compared with the CPI-U for September of the same year, and then CPI-U for September compared with the CPI-U for March of the following year).

Still, they are not a 100% inflation adjusting instrument because of the weighting of the fixed rate portion. But yes they do seem far more attractive than any normal government bonds at the moment. -1% guaranteed real return in this environment is about as attractive "sure thing" as you can get... as crazy as that sounds.

[NotJen]

Correct me if I'm wrong, but can't you also defer taxes on I-Bond interest until you redeem them if you don't want to pay as you go along? Maybe that's some other US Treasury product.

It's either/or.

You can defer interest until redeemed.  Or you can pay interest every year - but once you start paying interest yearly, you can't stop, and have to do it on all your bonds going forward (so I doubt I'll be doing that).

Once you start to report the interest every year, you must continue to do so every year after that for all your savings bonds and any you acquire in the future.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm

[secondcor521]

With current inflation rate of 7%-8% right now these Series I Savings Bonds I recently learned about  are a blessing!   I am going to max that $10k out this year.

I'll have about another $8k to invest each year and am wondering what is currently the next best low risk investment?--excluding stocks/VTI/VTSAX/etc..

I'm not an expert on investment choices, but there are a number of investment types that exist in the risk spectrum between I-bonds and stocks.  Here are some:

1.  US government-ish bonds.  I think there are some quasi-governmental agencies that borrow money from the public in the form of bonds.  Fannie Mae and Ginnie Mae come to mind, there could be others.  They'd possibly/probably be backed by the US government (and their power to tax and print more money), but might not be.

2.  State/municipal bonds.  States, cities, and other governmental entities that aren't at the federal level frequently borrow money from the public via bonds.  There are two subflavors I know of.  One is a specific kind of bond where it is paid back by revenue from the thing that they borrowed money for - a toll road or a stadium that sells event tickets.  The other kind is a general obligation bond, where the borrowed money is paid back from future tax revenues of the city or state.  The latter are usually considered safer than the former because cities and states can "always" raise more taxes.

3.  Blue chip bonds.  There are many companies that have strong financial positions who choose to borrow money because it's very cheap for them to do so and they can deploy that borrowed money into projects which they think can make even more money.  Or sometimes they have capital intensive projects and just don't have the money on hand or don't want to tie it up - think things like Intel chip plants or Toyota production lines or Amazon warehouses (or maybe Tesla gigafactories if you think Tesla's got a solid future).

4.  Foreign bonds.  Depending on how much you trust other governments, you can probably buy bonds from France, or Germany, or Italy, or Japan, or Kenya.  There are additional wrinkles here - currency risk is one, tax implications are another.

Overall, there are bond mutual funds that also invest in the above categories.  These are generally viewed as lower risk than individual bonds, but there are tradeoffs to be considered.

After true bonds, there are also things like preferred stock and convertible bonds that sort of live between bonds and stocks.  Some might place rental real estate, REITs, and collectibles in that space as well.  And then of course there are the wide range of thousands of mutual funds which invest in some proportion of bonds and stocks.

[blue_green_sparks]

With current inflation rate of 7%-8% right now these Series I Savings Bonds I recently learned about  are a blessing!   I am going to max that $10k out this year.

I'll have about another $8k to invest each year and am wondering what is currently the next best low risk investment?--excluding stocks/VTI/VTSAX/etc..

Maybe I should instead setup a revocable trust, which I believe allows me to add up to another $10k per year into Series I Savings Bonds.

What's nice about these Series I Savings Bonds is, say you have $100k in them over a 5 year period, and then say 6 years from now there is a major stock market crash when it drops 30-50%.  You could then redeem all those bonds and take the $110k (or so depending on interest accumulated) and buy up VTI at huge discounts. Then with any luck the panic will reverse a short time later and climb say 50-75%.   I like how the cash doesn't erode with I-Bonds so if you do want to try timing the market you don't get penalized so badly.

You could buy a MYGA contract. Otherwise known as a "cd" annuity as they serve the same purpose as a cd but they are sold by insurance companies that are not FDIC backed..However, depending on your state they may be backed by that state. My state backs up to 250K per insurance company in case they go belly-up.
They pay higher than CD's, the lower the company rating, the higher the interest. I got a 3 year, 3.33% deal from Gainbridge a while ago, completely online. They are tax defferred and you can assign a survivor.

[CoffeeR]

Your question is hard to answer since different people have different definitions of safe. I'm going to agree with you that US Treasury bonds are "safe". The problem with purchasing US bonds is to know what duration you need and how do you define "safe" if you need the money before maturity. Anyway, one place you could look is here:

https://www.ishares.com/us/strategies/bond-etfs/build-better-bond-ladders

which lets you purchase iBond ETF's of specific duration (you know when they mature) and being ETF's they are liquid and can be easily sold (possibly at a loss) before maturity.

[Omy]

Correct me if I'm wrong, but can't you also defer taxes on I-Bond interest until you redeem them if you don't want to pay as you go along? Maybe that's some other US Treasury product.

It's either/or.

You can defer interest until redeemed.  Or you can pay interest every year - but once you start paying interest yearly, you can't stop, and have to do it on all your bonds going forward (so I doubt I'll be doing that).

Once you start to report the interest every year, you must continue to do so every year after that for all your savings bonds and any you acquire in the future.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm

Ugh. I've been paying taxes annually on Series EE bonds I've had since 1992. I just picked up Series I bonds in November and was hoping I could switch to paying taxes on those only upon redemption...no go, I guess?

[PDXTabs]

Once you start to report the interest every year, you must continue to do so every year after that for all your savings bonds and any you acquire in the future.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm

Ugh. I've been paying taxes annually on Series EE bonds I've had since 1992. I just picked up Series I bonds in November and was hoping I could switch to paying taxes on those only upon redemption...no go, I guess?

Because I'm a tax nerd, I found this on the internet: https://www.irs.gov/pub/irs-pdf/p550.pdf
Check page 7.

[Omy]

So there is a way to make the change...thanks!

[jnw]

Once you start to report the interest every year, you must continue to do so every year after that for all your savings bonds and any you acquire in the future.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm

Ugh. I've been paying taxes annually on Series EE bonds I've had since 1992. I just picked up Series I bonds in November and was hoping I could switch to paying taxes on those only upon redemption...no go, I guess?

Because I'm a tax nerd, I found this on the internet: https://www.irs.gov/pub/irs-pdf/p550.pdf
Check page 7.

Wow there is cash vs. acrual methods on taxes for interest on bonds?   I thought that was just for accounting purposes for schedule c.

I used the accrual method of accounting for my small business.  I've been carrying inventory on my schedule c but without any sales, expenses or business income.  Accounting method is still accrual.  Most people use cash method of accounting I know but accrual was better for my purposes the way I handled the bookkeeping each month with Gnucash.  (The reason I've been carrying the inventory year over year on the schedule c, is if I ever wanted to return to doing the business.)

So does this mean I am forced to use accrual method of accounting for savings bond interest simply because I chose to -- at one point -- use accrual accounting for my schedule c business?  (Btw, I used to resale used items I purchased at flea markets, garage sales, thrift stores etc.)

From my understanding I thought we pay taxes from the 1099-INT we receive from the government.  And that we wouldn't have to do the accounting .. they do.. and I thought they'd send the 1099-INT only after we redeem the bond.  That is what was presented to me in various videos and even the TreasuryDirect.Gov web site if I recall.

[MustacheAndaHalf]

If inflation goes higher so does the rate for i-Bonds. I don't believe the USA will default, not in my lifetime.  You can't lose money on I-Bonds even if there is deflation.. protected against that.   Seems very safe to me.

You sure about that?

iBonds rates are set twice a year and not tradeable. The rate you get at the start is the rate you get for the life of the bond.

The interest payment is fixed - that why it's called fixed interest!

Your certainty isn't matched by facts.   My source of information is the US Treasury Direct website that actually issues the series I bonds.  100% of current series I bond interest is adjusted for inflation twice a year.

"I bonds have an annual interest rate derived from a fixed rate and a semiannual inflation rate."
https://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm

"Fixed rate 0.00%
Semiannual inflation rate 3.56%"
https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

[mistymoney]

TIPS?

[clifp]

With current inflation rate of 7%-8% right now these Series I Savings Bonds I recently learned about  are a blessing!   I am going to max that $10k out this year.

I'll have about another $8k to invest each year and am wondering what is currently the next best low risk investment?--excluding stocks/VTI/VTSAX/etc..

I like how the cash doesn't erode with I-Bonds so if you do want to try timing the market you don't get penalized so badly.

Ibonds are an excellent place to stash savings, but they aren't really an investment, because at best you are treading water. The 0% fixed portion means you are at best treading water.
With inflation running at 6%, it is important that people start thinking about investments in terms of real returns and nominal. So governments for instance conventional wisdom is the safest investment is US government bond which are yielding about 2.5%. If inflation continues at 6% that means over a dozen year you will have lost 1/2 of your money in real terms? Is that really safe.

It depends on how well you are protected from inflation, IIRC, you don't have a home,or maybe it was rental property you didn't buy. So for you, TIPs, real estate, or even gold may be the safest investment.

[PDXTabs]

Ibonds are an excellent place to stash savings, but they aren't really an investment, because at best you are treading water. The 0% fixed portion means you are at best treading water.

That is true today. In 2000 you could get a 3.60% real yield for the life of the bond. I'm hopeful that we will see that again with this round of inflation.
 

[jnw]

With current inflation rate of 7%-8% right now these Series I Savings Bonds I recently learned about  are a blessing!   I am going to max that $10k out this year.

I'll have about another $8k to invest each year and am wondering what is currently the next best low risk investment?--excluding stocks/VTI/VTSAX/etc..

I like how the cash doesn't erode with I-Bonds so if you do want to try timing the market you don't get penalized so badly.

Ibonds are an excellent place to stash savings, but they aren't really an investment, because at best you are treading water. The 0% fixed portion means you are at best treading water.
With inflation running at 6%, it is important that people start thinking about investments in terms of real returns and nominal. So governments for instance conventional wisdom is the safest investment is US government bond which are yielding about 2.5%. If inflation continues at 6% that means over a dozen year you will have lost 1/2 of your money in real terms? Is that really safe.

It depends on how well you are protected from inflation, IIRC, you don't have a home,or maybe it was rental property you didn't buy. So for you, TIPs, real estate, or even gold may be the safest investment.

Yeah I realize I'd be treading water.  But if I left it all in my bank savings account at 0.5% I'd be losing a lot compared to the over 7% I am mostly likely to get for the next 12 months -- I'll know this April 15th or so.  I plan on using I-Bonds as my main emergency fund , keep around $30k in it at minimum.   I've looked at chart over past 10 years or so of I-Bonds and not that bad at all .. beats savings accounts.  I'm affraid of regular bonds because you can actually lose principle with them unlike I-Bonds.  I need to get that book on bonds so I can understand them better and see what my long term options are with bonds. I just know that right now it makes sense to invest in I-Bonds.  I'll adjust my plan later when appropriate after I learn more.

I own a home.  Here is my current IPS and Investment Plan. I just wrote it up: 
https://drive.google.com/file/d/1d29YnOHH7bLAyurDQcbZ2k6aJOQ7Sjm5/view?usp=sharing

[Radagast]

Yup, the total payout for i bonds changes every six months as NotJen explained. Vand is it possible you are thinking of some other financial instrument with the same name in the UK?

The big issue with these is that you owe taxes at your regular marginal tax rates in the interest payments that adjust upward with higher inflation. So while ibonds are definitely better for a high inflation environment than cash sitting in the bank (or under your mattress), net of taxes you’re still losing purchasing power by having money in ibonds.

ok, it seems I do stand corrected:

A fixed rate of return which remains the same throughout the life of the I bond

and
A variable inflation rate which we calculate twice a year, based on changes in the nonseasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy (CPI-U for March compared with the CPI-U for September of the same year, and then CPI-U for September compared with the CPI-U for March of the following year).

Still, they are not a 100% inflation adjusting instrument because of the weighting of the fixed rate portion. But yes they do seem far more attractive than any normal government bonds at the moment. -1% guaranteed real return in this environment is about as attractive "sure thing" as you can get... as crazy as that sounds.

The cool thing about Series I is that losing to inflation is still not guaranteed. They also cannot have a negative nominal return, so if there is a period of deflation they will go to zero which is a positive real return, and then savings bonds could still hypothetically have a positive real return even after taxes.

[nalor511]

You can frontload next year's ibonds using the gift box if you have a family member to do it with

[EvenSteven]

You can frontload next year's ibonds using the gift box if you have a family member to do it with

Pretty sure yes. And you could also do that for several years all at once. But you can only claim the gift each year for the yearly max, so that is like adding lock up duration and 3 month penalty duration in exchange for having those ibonds starting to accrue interest now.

[jnw]

Once you start to report the interest every year, you must continue to do so every year after that for all your savings bonds and any you acquire in the future.

https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_itaxconsider.htm

Yeah and from what I've read it's a tax paperwork nightmare.  They still 1099 you the same as ever expecting full taxes on the demption, and you have to, through your historical paperwork show you've already paid accrued intrest on it.  I imagine when an estate gets inherited by beneficiary they might not know about this accrual you've done for years and might end up paying the full taxes when redeemed.  So I am gonna stick with paying taxes only at time of redemption, to avoid the paperwork and the potential for being taxed twice.

[dhc]

I’m confused. Here you’re asking for “safe” investments, and another thread you’re talking about sock slices. Do you have any kind of plan for what you’re attempting to invest for? It seems like you’re new to investing; it’s probably worth reading the stickied investment order thread. I’ve seen a bunch of nearly-identical questions over on bogleheads from a poster with the same name; their wiki is also a treasure trove of info, much better than you’re likely to get with shot-in-the-dark questions in either place. They’ll also give you background info so you can ask more informed and specific questions.

[jnw]

I’m confused. Here you’re asking for “safe” investments, and another thread you’re talking about sock slices. Do you have any kind of plan for what you’re attempting to invest for? It seems like you’re new to investing; it’s probably worth reading the stickied investment order thread. I’ve seen a bunch of nearly-identical questions over on bogleheads from a poster with the same name; their wiki is also a treasure trove of info, much better than you’re likely to get with shot-in-the-dark questions in either place. They’ll also give you background info so you can ask more informed and specific questions.

Sorry you are confused.  The question I thought was straightforward:  Which bang-for-the buck investment is the lowest risk after Series I Savings Bonds.  I didn't ask this question on Bogleheads so you just made that up.

I don't need to defend myself asking other questions here or on another forum.  I know the risks of stock trading vs index fund trading.  I know paying off mortgage and series I savings bonds are risk free investments.

Since you asked, yes I do have a plan. I wrote up an Investment Policy / Plan, as you should have noticed me mention, since you saw all my post on this forum as well as Bogleheads.

This question in this thread still stands and so does my question about Stock Slices, and any other question I ask.

I am already asking informed and specific questions.   I already know about all the basics of investing.  I've read The Path to Simple Wealth, etc..

[dhc]

I’m confused. Here you’re asking for “safe” investments, and another thread you’re talking about sock slices. Do you have any kind of plan for what you’re attempting to invest for? It seems like you’re new to investing; it’s probably worth reading the stickied investment order thread. I’ve seen a bunch of nearly-identical questions over on bogleheads from a poster with the same name; their wiki is also a treasure trove of info, much better than you’re likely to get with shot-in-the-dark questions in either place. They’ll also give you background info so you can ask more informed and specific questions.

Sorry you are confused.  The question I thought was straightforward:  Which investment is the safest after Series I Savings Bonds.  I didn't ask this question on Bogleheads so you just made that up.

I don't need to defend myself asking other questions here or on another forum.  I know the risks of stock trading vs index fund trading.  I know paying off mortgage and series I savings bonds are risk free investments.

Since you asked, yes I do have a plan. I wrote up an Investment Policy / Plan, as you should have noticed me mention, since you like to read all my questions on this forum as well as Bogleheads.

This question in this thread still stands and so does my question about Stock Slices.

What an extraordinarily defensive response to an attempt to provide useful information. You have asked several beginner-level questions in quick succession here, as has a poster with the same name at bogleheads, some of which appear to have been asked in both places at once (nothing wrong with that, just a statement implying you might be familiar with that forum and thus able to easily find their wiki). In many cases, multiple questions like this indicate someone without much of a plan who could benefit from some introductory material (for instance, the bogleheads wiki has extensive info on various types of bonds and their relative advantages and disadvantages, from which you might be able to come up with a satisfactory answer to your question here!). If that doesn’t apply to you, then feel to ignore my advice! I know I personally have learned much more from those resources or from shiny very specific questions, vs your more open ended ones, but to wash their own.

[dhc]

By the way neither paying off your mortgage or I bond  are actually risk-free. They may be low risk, but there’s no free lunch and investing is all about tradeoffs. Many of those require context (e.g. is the timeframe long enough that an EE bond doubling would be useful, or do you need access in a year, in which case the expected interest is very low?). But again, all of that is available for your reading pleasure if you don’t just dismiss my suggestion out-of-hand because you’re upset I thought you were more inexperienced than you are.

[jnw]

By the way neither paying off your mortgage or I bond  are actually risk-free. They may be low risk, but there’s no free lunch and investment is all want tradeoffs. Many of those require context (e.g. is the timeframe long enough that an EE bond doubling would be useful, or do you need access in a year, in which case the expected interest is very low?). But again, all of that is available for your reading pleasure if you don’t just dismiss my suggestion out-of-hand because you’re upset I thought you were more inexperienced than you are.

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I do like the idea of this better than paying off my 4.625% mortgage first, since it's a higher interest rate and I do have access to that cash again later if I need it, unlike paying off mortgage where you just dump your cash into the equity of the home.

My current IPS says to invest $10k into I-Bonds first then the rest to pay off mortgage.  I have about $20k to invest each year and so it'd be like $10k into I-Bonds and $10k into paying off mortgage @ 4.625%.  So between the two (4.625 + 8.4)/2 = 6.51% guaranteed return on $20k over this year.   It seems like the smart thing to do considering the 13 year bull run, high inflation,  overly dovish low fed rate, high cape, housing bubble along with crypto bubble.  (I only have $40k left on mortgage loan and investing about $20k per year so I might just pay it off after 2-3 years, with part of what I have saved in I-Bonds.) (But if inflation remains higher than my 4.625% interest rate on home it makes sense to just keep maxing out I-Bonds each year and paying minimum on mortgage, since I'll have access to all that cash for an emergency and it will be much more money earned than if I paid off mortgage.)

After I do get this mortgage paid off, I'll continue to build up the I-Bond to at least like $50-60k as an emergency fund.   And the rest will go mostly into VTI but some into BRK-B.

I've been considering doing a little bit of Stock Slices with Schwab instead of all into VTI/BRK-B.   Mostly interested in companies that Buffet would like.. value companies that can weather inflation and recession.   But I most likely will just do VTI because I know even the smartest of investors don't beat the S&P 500.   The questions I have about securities like  VTI, BRK-B, Stock Slices etc .., they are more for the future after I get the mortgage paid off.  But I will not deny, even with the market conditons like they are, I am still tempted to put at least a little into VTI/BRKB/Slices each month while I pay off mortgage.. tempted to slightly alter my IPS.

[Mr. Green]

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I Bonds have a 3-month interest penalty if cashed out within the first 5 years of ownership. The way Treasury handles this with electronic bonds is that the current value displayed on their website doesn't update for the first 3 months so the number you see there is always accurate. If the bond is held longer than 5 years the current value will jump to reflect the removal of the penalty.

[jnw]

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I Bonds have a 3-month interest penalty if cashed out within the first 5 years of ownership. The way Treasury handles this with electronic bonds is that the current value displayed on their website doesn't update for the first 3 months so the number you see there is always accurate. If the bond is held longer than 5 years the current value will jump to reflect the removal of the penalty.

Yeah but if you buy towards the end of the month, then it's just a little over 14 months without penalty.  But I imagine inflation might continue to be bad in another 6 months so I'll probably want to continue keeping the cash in there. I am going to keep adding to it as long as inflation is higher than my current mortgage rate.  It makes sense to have a huge emergency fund growing at a faster rate than my mortgage costs me, because then I have access to that money if I need unlike if I just throw it into home equiity.. which would then require a HOLEC (or the like) where I am paying interest to borrow.

I tentatively have plans to have at least 5 years worth of I-Bonds , like $50-60k emergency fund.  And draw from the tail end for emergencies or perhaps buying dips in the market.

[Mr. Green]

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I Bonds have a 3-month interest penalty if cashed out within the first 5 years of ownership. The way Treasury handles this with electronic bonds is that the current value displayed on their website doesn't update for the first 3 months so the number you see there is always accurate. If the bond is held longer than 5 years the current value will jump to reflect the removal of the penalty.

Yeah but if you buy towards the end of the month, then it's just a little over 14 months without penalty.  But I imagine inflation might continue to be bad in another 6 months so I'll probably want to continue keeping the cash in there. I am going to keep adding to it as long as inflation is higher than my current mortgage rate.  It makes sense to have a huge emergency fund growing at a faster rate than my mortgage costs me, because then I have access to that money if I need unlike if I just throw it into home equiity.. which would then require a HOLEC (or the like) where I am paying interest to borrow.

I tentatively have plans to have at least 5 years worth of I-Bonds , like $50-60k emergency fund.  And draw from the tail end for emergencies or perhaps buying dips in the market.

Just keep in mind I Bonds won't always be very appealing. A few years back CD rates handily beat I Bond rates. I would expect this to happen again sooner rather than later. As soon as inflation is tamed with increasing interest rates CDs will once again offer somewhat appealing rates while I Bond rates may return to near zero. Of course no one knows the future but this is a possibility I'm keeping in mind.

[jnw]

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I Bonds have a 3-month interest penalty if cashed out within the first 5 years of ownership. The way Treasury handles this with electronic bonds is that the current value displayed on their website doesn't update for the first 3 months so the number you see there is always accurate. If the bond is held longer than 5 years the current value will jump to reflect the removal of the penalty.

Yeah but if you buy towards the end of the month, then it's just a little over 14 months without penalty.  But I imagine inflation might continue to be bad in another 6 months so I'll probably want to continue keeping the cash in there. I am going to keep adding to it as long as inflation is higher than my current mortgage rate.  It makes sense to have a huge emergency fund growing at a faster rate than my mortgage costs me, because then I have access to that money if I need unlike if I just throw it into home equiity.. which would then require a HOLEC (or the like) where I am paying interest to borrow.

I tentatively have plans to have at least 5 years worth of I-Bonds , like $50-60k emergency fund.  And draw from the tail end for emergencies or perhaps buying dips in the market.

Just keep in mind I Bonds won't always be very appealing. A few years back CD rates handily beat I Bond rates. I would expect this to happen again sooner rather than later. As soon as inflation is tamed with increasing interest rates CDs will once again offer somewhat appealing rates while I Bond rates may return to near zero. Of course no one knows the future but this is a possibility I'm keeping in mind.

Yeah I guess I'll have to switch when appropriate. Some people speculate inflation will be the new norm for a while.   Especially since fed funds rate is still nearly zero.  I remember in late 1970's the fed funds rate was like 18% when there was 15% inflation.  Or 9% fed funds rate with 8.5% inflation.. now it's 8.5% inflation and 0.25% fed funds rate.  What does this mean? It confuses me lol.  How can they be so dovish.  Why haven't they raised the rate ?

[Radagast]

Since I learned about them, I have always thought I-bonds were very appealing, even when CDs were paying higher interest. I-bonds are much lower risk than CDs, because they do not have reinvestment risk and have much less inflation risk. There is no guarantee that a 5-year CD can be renewed at its original rate, or even a remotely good rate, and might have a significantly negative real or even nominal rate. Whereas I-bonds last 30 years and cannot have a negative real or nominal rate. Being able to defer, reduce, or even avoid taxes just makes them better. I bonds have much higher risk-adjusted return than CDs have, even 5 years ago, simply because the risk is so low. I don't think there will be a time when I would not recommend I-bonds in a bond portfolio. For the small risk-free part of a portfolio which I think everyone should have (5-10%) I-bonds are perfect.

[Mr. Green]

The current rate on Series I Savings Bonds, if you buy before end of April is effectively 8.54% for a full year, guaranteed, risk free -- unless you think the US Government is gonna default (my investment policy currently assumes there is zero chance of US default.)  You'll be able to cash that out in a little over 14 months with no penalty.

I Bonds have a 3-month interest penalty if cashed out within the first 5 years of ownership. The way Treasury handles this with electronic bonds is that the current value displayed on their website doesn't update for the first 3 months so the number you see there is always accurate. If the bond is held longer than 5 years the current value will jump to reflect the removal of the penalty.

Yeah but if you buy towards the end of the month, then it's just a little over 14 months without penalty.  But I imagine inflation might continue to be bad in another 6 months so I'll probably want to continue keeping the cash in there. I am going to keep adding to it as long as inflation is higher than my current mortgage rate.  It makes sense to have a huge emergency fund growing at a faster rate than my mortgage costs me, because then I have access to that money if I need unlike if I just throw it into home equiity.. which would then require a HOLEC (or the like) where I am paying interest to borrow.

I tentatively have plans to have at least 5 years worth of I-Bonds , like $50-60k emergency fund.  And draw from the tail end for emergencies or perhaps buying dips in the market.

Just keep in mind I Bonds won't always be very appealing. A few years back CD rates handily beat I Bond rates. I would expect this to happen again sooner rather than later. As soon as inflation is tamed with increasing interest rates CDs will once again offer somewhat appealing rates while I Bond rates may return to near zero. Of course no one knows the future but this is a possibility I'm keeping in mind.

Yeah I guess I'll have to switch when appropriate. Some people speculate inflation will be the new norm for a while.   Especially since fed funds rate is still nearly zero.  I remember in late 1970's the fed funds rate was like 18% when there was 15% inflation.  Or 9% fed funds rate with 8.5% inflation.. now it's 8.5% inflation and 0.25% fed funds rate.  What does this mean? It confuses me lol.  How can they be so dovish.  Why haven't they raised the rate ?

It seems like another half point hike is pretty much a done deal at their next meeting in May, with a considerable chance of it being three quarters of a point. The current expectation is another half a point in June. All told we're probably looking at close to 2% in hikes before the end of the year. There's no guarantee but agressive hikes like that have caused recessions the last several times they've had to do it, which would also kill inflation. The next 12 months will be interesting to say the least.

[jnw]

It seems like another half point hike is pretty much a done deal at their next meeting in May, with a considerable chance of it being three quarters of a point. The current expectation is another half a point in June. All told we're probably looking at close to 2% in hikes before the end of the year. There's no guarantee but agressive hikes like that have caused recessions the last several times they've had to do it, which would also kill inflation. The next 12 months will be interesting to say the least.

In 1982, back when inflation was at 8.5% like it is now, the fed funds rate was 12%.  The year before in 1980 the inflation rate was 12% and fed funds rate was 18%.  So I wouldnt' call a 2% increase in fed runds rate an aggressive hike?   Actually I dont' know what it means when we have such high inflation with an almost ZERO fed funds rate.  Has this even ever happened before?  Are we in uncharted territory?

https://docs.google.com/spreadsheets/d/1YSIIe7uAGXNqUkJstVyHRH08o_wNCvUiUYaS8rM7BH4/edit?usp=sharing

[maizefolk]

The future is always gonna be uncharted territory.

We've never had high inflation with the national debt so large a percentage of GDP (~125% today vs ~32% in the high inflation '70s and '80s). https://fred.stlouisfed.org/series/GFDEGDQ188S

Sustained interest rates between 12-18% would break the government. Call it 15% of $30T in debt = $4.5T in interest payments annually for a government that only takes in $4.05T in tax revenue.

I don't know what will happen, but an exact repeat of the 1970/80s where the inflationary cycle was broken by double digit federal funds rates seems unlikely.

[Mr. Green]

It seems like another half point hike is pretty much a done deal at their next meeting in May, with a considerable chance of it being three quarters of a point. The current expectation is another half a point in June. All told we're probably looking at close to 2% in hikes before the end of the year. There's no guarantee but agressive hikes like that have caused recessions the last several times they've had to do it, which would also kill inflation. The next 12 months will be interesting to say the least.

In 1982, back when inflation was at 8.5% like it is now, the fed funds rate was 12%.  The year before in 1980 the inflation rate was 12% and fed funds rate was 18%.  So I wouldnt' call a 2% increase in fed runds rate an aggressive hike?   Actually I dont' know what it means when we have such high inflation with an almost ZERO fed funds rate.  Has this even ever happened before?  Are we in uncharted territory?

https://docs.google.com/spreadsheets/d/1YSIIe7uAGXNqUkJstVyHRH08o_wNCvUiUYaS8rM7BH4/edit?usp=sharing

A lot of it just depends on how people react to the quick changes, which is where relativity comes in. Rates have been low for a long time, which has pushed home prices up dramatically, etc. How will moving from a Fed funds rate of 0% to 2-4% feel to most people? I'm going to guess they'll react more poorly to than than in the 80s because our recent super low rates for over a decade now have set expectation of costs for a whole generation based on that. We're about to find out.