US Savings Bonds V S&P 500

[burch64]

The "Savings Bond Advisor" web site has an interesting chart showing that US I Bonds have out performed the Vanguard S&P 500 index fund for the last 8 years.

I am not sure it is accurate but if it is it would make me feel better about my I-Bonds.

http://www.savings-bond-advisor.com/i-bonds-versus-the-stock-market/

Can this be correct?

Burch64

 

[IHateCNBC]

It appears the I Bond good deal ended 1 May 2006 on the last reset.

 

[FinanceDude]

The "Savings Bond Advisor" web site has an interesting chart showing that US I Bonds have out performed the Vanguard S&P 500 index fund for the last 8 years.

I am not sure it is accurate but if it is it would make me feel better about my I-Bonds.

http://www.savings-bond-advisor.com/i-bonds-versus-the-stock-market/

Can this be correct?

Burch64

Don't worry................massive refuting is on the way..............

 

[justin]

The opening line: "Ask 100 financial advisors whether stocks or Savings Bonds are the better investment for the long term, and all the ones who earn commissions selling stocks will tell you that stocks are always the better investment."

then,

"However, no matter what this graph says, don't buy Savings Bonds expecting to outperform stocks."


They did a good job of picking a period of historically good I-bond returns and historically bad SP500 returns.

I also wonder if they included reinvestment of SP500 dividends. Add those in and your SP500 would outperform the I bonds (since the Ibonds only beat the SP500 by ~4% over the course of 7-8 years).

 

[burch64]

I think I Bonds have only been sold starting in 1998, so they can't be cherry picking the best years.

Burch64

 

[justin]

I think I Bonds have only been sold starting in 1998, so they can't be cherry picking the best years.

To clarify, when I bonds were new (it was 1998 I think - I remember playing commercials advertising them when I was a college radio station DJ), the "real" return component was much higher than it is today (~4%?). Now, and for the last few years, the real component has shrunk to 1-2%. Parallel to the real component of TIPS. The real return was high when the product was relatively unknown, but now that the demand has picked up, the high return is no longer required.

And cherry picking it is nonetheless. They could have picked the 2003-2006 period, but the SP500 smoked the ibond returns over that period.

Were Ibonds a good bet in 1998 with the benefit of hindsight? Yes. Solid "real" returns and deferred taxation on gains. Are they a good bet today? In my opinion, no.

 

[modlair]

Given that an S&P fund throws off only about 1.5% in dividends, and those get favorable tax treatment, and you can just hold the S&P index fund tax deferred, and the I Bonds dodge only state tax, I suspect the tax practicality of all this will kill the I Bonds returns outside an IRA.

 

[burch64]

And cherry picking it is nonetheless.  They could have picked the 2003-2006 period, but the SP500 smoked the ibond returns over that period. 

If one picked 2003-2006 period to compare wouldn't that also be "cherry picking"?

Burch64

 

[brewer12345]

Who cares what the better choice was several years ago. Can they tell me what the best choice is for the next several years?

 

[wabmester]

I am not sure it is accurate but if it is it would make me feel better about my I-Bonds.

When did you buy your i-bonds? If you bought them between 1998-2000, then you got a good deal, and your bonds very well might outperform stocks in the long term.

If you bought them in the last couple of years, you're not likely to outperform stocks.

 

[justin]

If one picked 2003-2006 period to compare wouldn't that also be "cherry picking"?

Sure it's cherry picking. My point is that if one can pick a period to compare performance, then one can also pick the winner of the comparison.

I didn't think the article posted was very useful for long-term investors.

 

[haha]

Given that an S&P fund throws off only about 1.5% in dividends, and those get favorable tax treatment, and you can just hold the S&P index fund tax deferred, and the I Bonds dodge only state tax, I suspect the tax practicality of all this will kill the I Bonds returns outside an IRA.

I bonds allow deferral of federal tax until they are redeemed or mature. You don't even get a 1099.

So an IRA is not where you would want to hold them.

However, unless the fixed part of the interest improves, I don't think I would want to hold them anywhere, except the old ones which are very good and definitely should not be cashed. I am not sure what the max was, but I have some that earn 3% real.

Ha

 

[wabmester]

I am not sure what the max was, but I have some that earn 3% real.

3% is a keeper. Max was 3.6%.

 

[retire@40]

I bonds allow deferral of federal tax until they are redeemed or mature. You don't even get a 1099.

You don't get a 1099 when they are redeemed?

 

[haha]

You don't get a 1099 when they are redeemed?

Sure you do. As I said, federal tax can be deferred, but is due on redemption or maturity.

Ha

 

[Tadpole]

Can this be correct?

Burch64

Looks to me like it is absolutely correct. Starts almost on the top of a bubble, goes throughi the crash and ends at today. Wonder what tomorrow has to offer. Got a time machine? Think 2006 is another 1999? Then go for it! I don't like the view when I move the starting date of this comparison. Sure wish I had had a one time only encounter with that advisor in 1999. I wouldn't have much more money but I would have less gray hair.

 

[ats5g]

Interestingly enough, a $100 dollar invesment in Vanguard's Total Market Stock Fund from September 1998 to now, would've given about the same pre-tax return as the I bond. Not too mention that small caps, LV, and SCV trounced both handily.

- Alec

 

[modlair]

Sure you do. As I said, federal tax can be deferred, but is due on redemption or maturity.

My bad. Taxes much less an obstacle to the comparison than I thought.