quote:

Originally posted by Rey HRH:Why China Buys U.S. Debt With Treasury Bonds

Do they only get to buy $10k a year too?

Yes and "gifts" for 1 Billion family members

Given the choice of either buying I Bonds or putting it Roth IRA, should one favor one over the other?

Let me guess, it depends?

^^^ Apples and oranges. One is an investment choice (i-bonds) and the other is a tax-advantaged individual retirement account to which you can contribute after-tax dollars. In the ROTH, you have a multitude of investment choices including Treasury inflation-protected securities (TIPS), stock mutual funds, stock ETF funds, bond mutual funds, ETF bond funds, and thousands of combinations you can dream up.

Yep. Apples and oranges. Currently, the best plan would be both.

Historically, the stock market returns over the long run have greatly outstripped the return on I Bonds.

But there are short term situations (like the one we're in currently, with high inflation and poor market performance) in which I Bonds outperform the stock market. That doesn't mean you should totally bail on the stock market and go all-in to I Bonds though.

I'm still contributing fully to my Roth IRA. Think of it as buying stocks on sale! But I moved a big chunk of my other non-retirement but longer term savings/investment money into I Bonds. It'll sit there until the return on I Bonds eventually drops to a lower level as inflation gets under control, at which point I'll move those funds over to something different/better.

Basically, view I Bonds as more of an alternative to something like a CD, rather than an alternative to retirement plan investment, especially tax-advantaged options like an IRA.

quote:

Originally posted by r0gue:

quote:

Originally posted by Rey HRH: Why China Buys U.S. Debt With Treasury Bonds

Do they only get to buy $10k a year too?

All the money received from selling US Government Debt goes into the same pot for the most part. Even social security funds are "invested" in US Government Bonds.

quote:

Originally posted by Rawny:
Given the choice of either buying I Bonds or putting it Roth IRA, should one favor one over the other?

Let me guess, it depends?

As others said, it's apples and oranges but let me give you another take on the difference.

Assuming one has limited funds but can direct money to one or both, the following applies.

While I Bonds has a 30 year maturity, it really is a short to medium term investment playing off the current inflation rate. While it is exempt from state and local taxes, the federal still takes its cut sooner or later.

Roth IRAs are a long term investment geared for retirement with its compatriot a regular IRA which is also a long term investment geared fro retirement. Within these two accounts, you can invest your money in a multitude of vehicles. The difference between the two is that with Roth IRAs, you pay with after tax dollars with the benefit of the growth and future withdrawals being free from taxation (as of currently). Regular IRAs are funded with pre-tax dollars which increases your current cash flow by subjecting less of your current earnings to taxation. To offset this, taxes are due when you get to start withdrawing and at some point. There are forced minimum withdrawals at a certain age (age 72 for those not yet age 70 and age 73 starting in 2023) because the government wants their cut.

So money you are investing in the short to medium term can consider I-Bonds but not money you are investing for your longer term retirement (I'm assuming you still have a ways to go until retirement).

Going down to 4.3%, I can get that at any local bank, well it was fun while it lasted.

Yep. Still, it was a nice short term (safe) investment. But you can now do better than 4.3% with even just a high yield savings account.

However, keep in mind that your prior variable rate applies for an entire 6 month rolling term. So they won't just all drop to 4.3% on Monday.

Personally, I'm likely going to take all of my 0% fixed rate I-Bonds, figure out when the higher variable rate periods ends for each of those bundles of bonds, then sit on them for 3 more months of 4.3% (which I'll lose anyway since they're less than 5 years old), then cash them out and stick them in something else.

End up having earned 8.26% on what's effectively a "15 month CD". Plus the interest is exempt from state income tax.

quote:

Originally posted by RogueJSK:
Personally, I'm likely going to take all of my 0% fixed rate I-Bonds, figure out when the higher variable rate periods ends for each of those bundles of bonds, then sit on them for 3 more months of 4.3% (which I'll lose anyway since they're less than 5 years old), then cash them out and stick them in something else.

That's exactly what we're going to do here too.

Well the WSJ does not agree with you. Here is the rationale:

The interest rate on I bonds is now 4.3%, down from 6.89%, the Treasury Department said Friday.

The new rate will apply to I bonds purchased for the next six months. Though it is less than half the 9.62% offered last year, when the inflation-adjusted savings became so popular that investors crashed Treasury’s website, financial advisers say they may now be a better bet for the long term.

The fixed-rate component of the I bonds is rising to 0.9%, up from 0.4%, the highest since 2007.



I bonds are inflation-adjusted Series I savings bonds backed by the U.S. government. The I bond interest rate is a combination of a fixed rate and an inflation adjustment that is recalculated every six months based on economic data. The fixed-rate portion, determined at the Treasury’s discretion, doesn’t change with inflation.

The higher fixed rate makes the newest I bond issue more appealing to long term investors, especially since the fixed rate has been at or near 0% for most of the past decade. The new rate applies to I bonds purchased from April 28 through the end of October.

“This is a great way to hedge against future rate uncertainty,” Eric Pepper, a financial planner at Northbrook Financial. He typically makes two laddered purchases of $5,000 to reach the annual $10,000 cap each year.

I Bonds: The Little-Known but Safe, High-Return Investment
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There is an investment that is 100% backed by the U.S. government, never loses its value and is paying more than 7% interest a year. So, why haven’t most Americans heard of Series I Savings Bonds? WSJ’s Dion Rabouin explains. Photo: TNS/Zuma Press
I bonds mature in 30 years and have a 12-month lockup period. Investors who cash out in the first five years are subjected to a penalty equal to three months of interest.

On Oct. 28, the last day to lock in the 9.62% rate, more I bonds were sold in a single day than the Treasury usually sells in a year. But those bonds carried a fixed rate of 0% and the inflation adjustment changes every six months.

“That eye-popping six months inflation rate last year kind of hid the fact that the fixed rate was only 0% and that 0% is going to stick with you for the entire term,” said Ken Tumin, founder of DepositAccounts.com, a bank account comparison website.

omeone who bought I bonds back at 9.62%, would earn an annualized rate equal to the inflation adjustment of 3.38%, over the next six months while someone who bought I bonds at the 6.89% rate would earn 3.78% due to the 0.4% fixed rate, Eric Pepper, a financial planner at Northbrook Financial said.

Still, they are expected to be less popular among shorter-term investors as rising interest rates lead to more alternatives for higher yields.

“From a short-term investor’s point of view, the I bond is no longer a slam dunk,” said Mr. Tumin.

I bonds were the best option for investors looking for risk-free short-term returns last year as inflation soared and the S&P 500 dropped by nearly 20%. In 2022, the I bonds offered an average of more than 8% when most savings accounts and certificates of deposits offered less than 3% interest, according to Nerdwallet.com.



An investor who put $10,000 in I bonds at the 9.62% rate would be better off paying the early withdrawal penalty if they could find a 12 month investment paying more than 5.5%, according to a calculation by Mr. Pepper.

Before moving your money it is also important to consider any tax implications. Even if a certificate of deposit or money-market fund carries a higher rate, the tax benefits of I bonds could make them a better deal. The interest payments on savings bonds are exempt from all state and local income taxes, whereas interest from a CD is taxable income.

Financial advisers say it is better to cash out some of your I bonds if you’re about to go into debt in a rising rate environment.

“The interest that you’re going to pay on the credit card will be much worse than the penalty that you’ll take,” Mr. Pepper said.

link https://www.wsj.com/articles/i...b1?mod=hp_listb_pos1

quote:

Originally posted by Ivan:
Is it me, or does anyone else have an issue loaning this trash administration any cash?

Meh, it matures in 30 years. Chances are you’ll see red and blue in office during that time

I've got I-bonds that were purchased over 20 years ago with the "fixed" portion of the interest rate being around 2%. These bonds had rates over 10% for most of the past year.

Some years I felt brilliant owning these, some years I felt stupid comparing I-bond rates to returns on the stock market.

For me these are part of my investment mix. With the national debt as high as it is, I can't imagine that inflation will stay low. The notion that the Fed should reset their inflation target to 4% is already espoused by several mainstream economists.

With the fixed rate currently at .9% I'd rate these as worth nibbling at with a portion of your savings.

True, a higher fixed rate does make it potentially attractive for long term investment.

But for the previous several years the fixed rate was 0%. So I'm going to be cashing out my 0% fixed rate I-Bonds. I knew going into it that those were just a short term investment. I may or may not reinvest some of that into new higher fixed rate bonds.

Don't buy I bonds now...your money is tied up for at least a year and the new rate is only 4.3% for the next six months. You can do better in a CD or high-yield savings account.

You missed the time to buy i bonds

Short term, no.

But if you're including I-Bonds as part of your long-term investment strategy anyway, and plan to hold them for their entire 30 year span, picking up some of the current fixed 0.9% I-Bonds could be attractive.

This would mean that in 5/10/20 years when we see 9% variable interest rates on I-Bonds again, you'd be earning nearly 10%.

Same as the folks who bought I-Bonds back in the late 90s and early 2000s when their fixed rate was 2%-3.5%. They were making 11.5%-13% last year when everyone else was just piling into the 9.6% for the short term.

The 13 week Treasury Bills auctioned today have a 5.274% annualized rate of return.

Soooooooo if you have cash just sitting in the bank and other stuff going into IRAs and work retirements then I bonds is still a reasonable buy if you don't plan on needing the cash for the next 10 years or so?

Potentially yes.

Safe, inflation-protected investments like I-Bonds have been worthwhile considerations for possible inclusion in a diversified portfolio since their inception. They're just no longer a no-brainer $10k investment for everyone, like they were a year ago.

(If you have cash just sitting in the bank, I hope it's in a high yield savings account... They're currently pushing 5% at several banks, and likely to go up even a bit more in the near future.)

"They are virtually risk-free, yet currently pay 9.62% annually"?

This is from Treasury Direct.

Series I Savings Bonds
4.30% This includes a fixed rate of 0.90%
For I bonds issued May 1, 2023, to October 31, 2023.

Am I missing something?