IBonds

[retiredunder50]

For the first 15 years of I Bond existence, they were a pretty decent and safe investment. Of course, with the decline in the fixed rate component over the last bunch of years, the advantage went away.

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

 

[ERD50]

Just a quick review of actual IBond results for 18 years.

IBond 2001 $10,000

2018 comparison
Inflation $14,000
Dow $26,000
IBond $27,000

In the early years, the buy limit was $30,000/person/year.

Something to consider?

Several things to consider. Three very important ones that must be considered in any financial comparison (some have already been mentioned, just trying to consolidate it here).


A) As has been pointed out, it must be apples-apples. Your figures for DOW are not total return, only the price change. This understates the DOW, it just pretends there are no dividends paid, they just vanished! That is disingenuous, to be polite (not criticizing you, just the source you used).

Please, compare total value, or it is meaningless!


B) Cherry picked time frame. 2001 was near the peak of the fixed interest rate for iBonds. I'll guess they didn't select the actual peak, as it may have made stocks look better? Why 2001? It's not 20 years, it's not, well, anything, which makes it sound cherry picked.

See this page, can't seem to copy the image.

I-Bonds: Current I-bond Fixed Rate

And iBonds paid ~ 3.00% fixed in 2001. For the past 10 years, the fixed rate has mostly been zero, 0%, nada, nothing, niente, nichts! The rate is dead I tell you (Monty Python reference)! A few periods of 0.1% ~ 0.3% in there, and recently rising to 0.5%.

C) An investor today can't replicate this. Other than an interesting historical view, it's about the same as saying "$10,000 invested in AAPL JAN2001 would be worth, wait for it... $1,773,822 today". Even after inflation, that's $1,164,305! Take that, you stinkin' iBonds!

IBond 2001 $10,000

2018 comparison
IBond .... $27,000
AAPL .. $1,773,822

Yes, iBonds turned out to be a good deal when they paid 3% fixed. I should have jumped in, But with a $30,000 annual limit, it would not have been that big a deal overall.

Thanks for the interesting bit of history, but that's about all it is. Wake me up if iBonds hit 3% again!

-ERD50

 

[mrfeh]

For the first 15 years of I Bond existence, they were a pretty decent and safe investment. Of course, with the decline in the fixed rate component over the last bunch of years, the advantage went away.

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

It really doesn't make sense to compare I Bonds to equities. They are completely different assets.

 

[retiredunder50]

Several things to consider. Three very important ones that must be considered in any financial comparison (some have already been mentioned, just trying to consolidate it here).


A) As has been pointed out, it must be apples-apples. Your figures for DOW are not total return, only the price change. This understates the DOW, it just pretends there are no dividends paid, they just vanished! That is disingenuous, to be polite (not criticizing you, just the source you used).

Please, compare total value, or it is meaningless!


B) Cherry picked time frame. 2001 was near the peak of the fixed interest rate for iBonds. I'll guess they didn't select the actual peak, as it may have made stocks look better? Why 2001? It's not 20 years, it's not, well, anything, which makes it sound cherry picked.

See this page, can't seem to copy the image.

I-Bonds: Current I-bond Fixed Rate

And iBonds paid ~ 3.00% fixed in 2001. For the past 10 years, the fixed rate has mostly been zero, 0%, nada, nothing, niente, nichts! The rate is dead I tell you (Monty Python reference)! A few periods of 0.1% ~ 0.3% in there, and recently rising to 0.5%.

C) An investor today can't replicate this. Other than an interesting historical view, it's about the same as saying "$10,000 invested in AAPL JAN2001 would be worth, wait for it... $1,773,822 today". Even after inflation, that's $1,164,305! Take that, you stinkin' iBonds!



Yes, iBonds turned out to be a good deal when they paid 3% fixed. I should have jumped in, But with a $30,000 annual limit, it would not have been that big a deal overall.

Thanks for the interesting bit of history, but that's about all it is. Wake me up if iBonds hit 3% again!

-ERD50

The curve was for the Vanguard 500 Index Fund, not the Dow. According to the article in the link provided with the graph, it does account for dividends ("The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends.")


It is absolutely cherry-picked data, but it was also accurate. Other things that weren't factored in were the income tax implications on the gains. I have been using mine for education for the kids. As a result, there was no federal income tax. There is no state income tax on the gains. There are no expense fees. All that aside, it provided a relatively brief window of time in a very safe instrument that did ok. The party is over.

 

[Texas Proud]

The curve was for the Vanguard 500 Index Fund, not the Dow. According to the article in the link provided with the graph, it does account for dividends ("The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends.")


It is absolutely cherry-picked data, but it was also accurate. Other things that weren't factored in were the income tax implications on the gains. I have been using mine for education for the kids. As a result, there was no federal income tax. There is no state income tax on the gains. There are no expense fees. All that aside, it provided a relatively brief window of time in a very safe instrument that did ok. The party is over.

ERD quoted the OP, not you... the OP used the DOW and only the DOW amount without divis... I had pointed that out a few post later...


ERD's observation is correct... it means nothing for making a decision today... and I would argue, like him, that a zero fixed rate is not worth buying...

 

[retiredunder50]

ERD quoted the OP, not you... the OP used the DOW and only the DOW amount without divis... I had pointed that out a few post later...


ERD's observation is correct... it means nothing for making a decision today... and I would argue, like him, that a zero fixed rate is not worth buying...

oops, you are right, i saw a response under mine and skimmed through too quickly. I too would say that a zero fixed rate is not worth buying.



I would also say that there was a pretty interesting performance for about 15 years that I would never have guessed. I had always heard about how the S&P 500 averages (take your pick) 7,8,9, 10% a year. Yet over a 15 year window, savings bonds, with monthly purchases that included horrible fixed rate components in the later years, kept up with S&P 500. I would have lost a bar bet on that. As I said before, the party is over.

 

[steelyman]

Another sensationalist thread title/post, it appears. “What will you DO all day?”.

 

[Texas Proud]

oops, you are right, i saw a response under mine and skimmed through too quickly. I too would say that a zero fixed rate is not worth buying.



I would also say that there was a pretty interesting performance for about 15 years that I would never have guessed. I had always heard about how the S&P 500 averages (take your pick) 7,8,9, 10% a year. Yet over a 15 year window, savings bonds, with monthly purchases that included horrible fixed rate components in the later years, kept up with S&P 500. I would have lost a bar bet on that. As I said before, the party is over.

But interesting to see that stocks are now doing better even with the dot com bust and the second worst market since 1900...


I also bet that if you started that graph around 2003 or so the S&P would be a clear winner... and if in 2009 there is no question...


The early years of 3%+ fixed makes a huge difference... without that I would bet I Bonds are pretty bad... first, no fixed and inflation has been very low for many years...

 

[scrinch]

We have 6 x $10,000 iBonds from July 2000. I remember when we bought them in the midst of the dot.com stock market boom that everyone we mentioned it to thought that we were being irrationally conservative in our investment decision. With the stock market growing as it was, it took some pretty contrary thinking to sell stocks and place the money in government bonds! The purpose of the investment was to put some money in a very safe investment as an inflation hedge. Who would have thought that almost 20 years later that low-risk inflation hedge would be on even (pre-tax) footing with the S&P500? The bonds are now worth right around $29,500 each and have served their purpose exceedingly well.

 

[Joggernot]

http://www.early-retirement.org/forums/f44/feel-like-a-fool-and-its-my-own-fault-95857-4.html

#65 in this thread shows some actual results.

 

[meleana]

I started to buy I Bonds years ago every month- small denominations- like $150. I have a ton of them. LOL!


Then I also bought a couple for like $3000.



Then I stopped working so no more automatic monthly purchase.



What I also do is when my old EE bonds come due I use them to purchase I Bonds. The EE bonds I converted to electronic format years ago so it is very easy.


All in all, I only have about $30,000 worth,

 

[big-papa]

Just got our $5K in Ibonds from our tax refund. Small denominations, mailed to us each in its own envelope. Why, oh why, isn't there an option to just do this electronically straight into Treasury Direct? Just like last year, we'll dutifully do the paperwork and mail the individual bonds back to Treasury Direct where they'll be converted.

 

[Lucky1]

Absolutely. To compare yields to alternatives is to completely miss the point. TIPS (in our case) and IBonds provide absolutely bulletproof inflation protection. Really, for many of us, runaway inflation is the only thing that could ruin our retirement.

In a calm inflationary environment we accept a slight total return penalty over, say, Treasuries. I consider that difference to be an insurance premium, just like I pay an insurance premium to protect my house. Runaway inflation is a low probability, high impact event. Just like a house fire.

I think you are spot on with your assessment.