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Are Stocks Always a Better Investment Than I-Bonds?
Old 01-18-2011, 11:30 AM   #1
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Are Stocks Always a Better Investment Than I-Bonds?

This graph says no, although the outcome over any given period will be dependent on the going-in I bond yield, and the yet to be known total return from stocks.

Series I Savings Bonds vs the stock market: US Savings Bonds

Ha
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Old 01-18-2011, 11:43 AM   #2
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wow, that graph covers a 13 year period of history....that should certainly be enough data to extrapolate future expected results...
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Old 01-18-2011, 11:56 AM   #3
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The first comment is from over four years before the date of the article.
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Old 01-18-2011, 12:35 PM   #4
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The first comment is from over four years before the date of the article.

The last sentence does say the graph was updated.... so maybe the article is old, but the graph keeps changing...
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Old 01-18-2011, 02:25 PM   #5
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Moral of the Story: when stocks are priced at a PE-10 of 33x and I-Bonds pay 3.4% real, buy I-Bonds.

But today's question is what do you do when stocks are priced at 23x and I-Bonds pay 0.2% real?
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Old 01-18-2011, 04:04 PM   #6
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But today's question is what do you do when stocks are priced at 23x and I-Bonds pay 0.2% real?
Whatever you do with I-bonds can still only be done up to $5K at a time, right? I know there are games to play with different SSNs and accounts, but with that bottleneck it's kinda hard to jump back & forth between the two asset classes.
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Old 01-18-2011, 04:12 PM   #7
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Whatever you do with I-bonds can still only be done up to $5K at a time, right? I know there are games to play with different SSNs and accounts, but with that bottleneck it's kinda hard to jump back & forth between the two asset classes.
Yup, which kind of makes the whole thread moot, unless it's just a vehicle to laugh at needle equity enthusiasts.
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Old 01-18-2011, 06:24 PM   #8
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I posted it because I thought it was interesting, not to suggest that anyone could or should do anything about it. Back when rates were 3+%, no tmany of us took much advantage of it because we were going to make way more in the runaway stock market anway.

Incidentally, back then I-Bond rates tracked TIPS real yields pretty well, so this could have been done in size, at least in a tax deferred account; giving up the put and the tax deferral of I bonds to buy an unlimited amount of TIPS.

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Old 01-18-2011, 09:00 PM   #9
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Incidentally, back then I-Bond rates tracked TIPS real yields pretty well, so this could have been done in size, at least in a tax deferred account; giving up the put and the tax deferral of I bonds to buy an unlimited amount of TIPS.

Ha
I know.

Right now I'm selling equities, selling bonds, building cash, and waiting for those 3% real yields to return.
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Old 01-19-2011, 01:06 AM   #10
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I don't think we'll ever see the 3% real ibond returns again. Too bad, even @ $5K I would take them. I am actually selling old ibonds right now but that is because younger son is in college and they should be tax free when used for college expenses.
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Old 01-19-2011, 08:03 AM   #11
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I don't think we'll ever see the 3% real ibond returns again.
I'm not so pessimistic. The current rate environment isn't normal and will not persist forever. It seems to me that once the economy returns to normal growth with full employment 2.5%-3% real yields should be commonplace. That would mean a 2.5% inflation rate with a 5%-5.5% nominal 10-yr treasury yield. That seems pretty normal to me. Certainly more normal than what we have today.

And indeed, that is pretty much what we've averaged over the past 50 years or so. The median difference between the 10-yr treasury yield and trailing 12 month inflation is 2.7%. (This isn't a perfect measure for what market TIPS yield would have been, but it is a reasonable approximation).
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Old 01-19-2011, 12:59 PM   #12
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I don't think we'll ever see the 3% real ibond returns again. Too bad, even @ $5K I would take them. I am actually selling old ibonds right now but that is because younger son is in college and they should be tax free when used for college expenses.
Impossible to say. Remember that we last saw them as recently as fall 2008. Also no need to wait for that magic 3%. Several years before '08 there were bonds of many different maturities, in the neighborhood of 2.5% real. Can you live off that? If so, there is retirement, signed, sealed and delivered.

Some poster who was quite dominant at the time got all embroiled in "your private inflation" and other distractions. But for some people it was a great opportunity and might have helped avoid a lot of anxiety.

Ha
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Old 01-19-2011, 10:05 PM   #13
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IIRC correctly when I-bonds were first offered online circa 2000, there was no limit.

Unfortunately, the maximum denomination you could buy was $500. I bought 10 using a discover card (1% rebate!) but soon got weary of entering my credit card info and was buying up my credit card limit. Obviously, at 3.4% I wish I had bought a lot more.
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