The Wall Street Journal is the newspaper of the investment industry. As such, it has little interest (no pun intended) in publishing about investments that can be bought with no commission or traded on the secondary market where a broker can take a cut.
That’s why I am so surprised to see an article about I-Series Savings bonds in the WSJ.
**Investors Flock to ‘I Savings Bonds’ for Protection Against Inflation** **They have all sorts of advantages for those worried about rising prices. One caveat: There is no secondary market.**
**By Lori Ioannou, Feb. 6, 2022**
**As inflation rises, another low-risk investment is getting more attention: the tried-and-true Series I savings bond known as inflation or I bonds.**
**These federally guaranteed instruments currently have annualized yields of 7.12%, which you can only collect when you cash out. That represents the second-highest rate on newly issued I bonds since they were introduced in 1998, and it is more than double the 2.232% yield on 30-year U.S. Treasury bonds....**
**I bonds can be purchased by U.S. citizens, or civilian employees of the U.S. Investors can open accounts to buy these securities for themselves; for a business, trust or an estate; as a gift to another individual; or for a child through a custodial account opened on the site....A couple can open an individual account for each spouse, an account for an LLC or S Corp. if they own a business, and an account for a revocable living trust. That brings the total to $40,000 a year...** [end quote]
A trustee for an irrevocable trust can also buy I-Bonds in the trust.
The Wall Street Journal is the newspaper of the investment industry. As such, it has little interest (no pun intended) in publishing about investments that can be bought with no commission or traded on the secondary market where a broker can take a cut.
Actually that’s not true. While the editorial pages of the WSJ often differ little from a Joe Rogan podcast, I’ve found the actual news content to be balanced and informative.
Just a couple of months ago the WSJ had an article on a topic I’ve been complaining about for 40 years.
These federally guaranteed instruments currently have annualized yields of 7.12%, which you can only collect when you cash out. That represents the second-highest rate on newly issued I bonds since they were introduced in 1998, and it is more than double the 2.232% yield on 30-year U.S. Treasury bonds…
I consider my I-bonds to be the ballast for my portfolio.
Ballast is a very apt description.
I bought some I-bonds when they first came out in 1998. I just checked my Treasury Direct account. They’ve a bit more than doubled in value over the 24 years I’ve held them. (Inflation has only averaged about 2% annualized over the past 20 plus years.)
A dollar invested in the S&P 500 back in 1998 is worth $5.85 today and the gain is taxed at preferential qualified dividend & capital gains rates rather than the much higher ordinary income tax rates that attach to an I-bond.
That’s a very strong ballast to my long term, after tax investment returns.
A dollar invested in the S&P 500 back in 1998 is worth $5.85 today and the gain is taxed at preferential qualified dividend & capital gains rates rather than the much higher ordinary income tax rates that attach to an I-bond.
This is absolutely true. However, the SWR rate was calculated with a 60/40 portfolio … and that 40 in FI has to go somewhere. I-bonds have been fine for some of the 40% FI portion over the last 20+ years.
Also, as far as taxes go, the I-bond has a little-known feature that can result in a 0% tax rate. If you use the funds to pay for higher education, you may not be taxed on it. And since money is fungible, if you’re going to be writing checks for college anyway, you can just as well cash in a few I-bonds to eliminate the taxation on those gains.
I bought some I-bonds when they first came out in 1998. I just checked my Treasury Direct account. They’ve a bit more than doubled in value over the 24 years I’ve held them. (Inflation has only averaged about 2% annualized over the past 20 plus years.)
Just for fun, I checked one of my old I-bonds … purchased in 10/2001, and each $1000 is now worth $2814.80 … that’s respectable enough for FI!
Also, as far as taxes go, the I-bond has a little-known feature that can result in a 0% tax rate. If you use the funds to pay for higher education, you may not be taxed on it.
Subject to income limitations. The amount of tax exempt interest is based on the owner’s modified adjusted gross income (MAGI). If the owner’s MAGI reaches a certain threshold, they may not be eligible for this program. For joint tax filers in 2020, that threshold was $153,550. For single filers, the MAGI threshold was $97,350
Also be careful how you title the owner of the bond: The bond owner must be 24 years of age or older at the time of purchase. If a parent buys the bond and puts it in the name of a child who is under 24 years of age, the bond does not qualify.
This was one reason why we bought the bonds when the kids were small. It was impossible to imagine we would ever be over the max income requirement when it came time to use it, but sure enough we were and we are still holding those bonds.
Yep. The limitation makes that particular benefit useless to us right now, but I like mentioning it in case it can help others. It’s also a VERY rare kind of benefit, I am not aware of it applying to any other “normal” (normally unsheltered) FI investment.