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Old 06-21-2022, 10:14 AM   #101
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I saw an article in Forbes kind of poo pooing ibonds recently. I thought author kind of missed the mark.

https://www.forbes.com/sites/baldwin...h=7b8d891e4236
It's important to read the author's assumptions in the second half of the article where he compares I-bonds and TIPS. If they fit the buyer's profile, he may be right. OTOH, If they don't or if one's situation changes, those I-bonds are still a lot better than a 'High Yield' account at most internet banks.

A wise person who can't adequately predict the future, might do something very radical, like diversify between I-bonds and TIPS for the inflation protection part of her portfolio. Crazy idea.

Overall, if he gives us a few reasons to pause, consider our goals and then decide. So, I can't fault him.
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Old 06-21-2022, 11:16 AM   #102
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I have had ibonds for many years and I canít recall any period of any length where ibonds were worse than any other form of cash. Even if they lagged slightly I would hold onto them for the inflation protection.
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Old 06-21-2022, 03:46 PM   #103
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But could she receive $10K from me and $10k from any number of others or trusts or businesses? The gradual acquisition and redemption of the I bonds is something to ponder - potentially being trapped in a low earning investment and unable to liquidate as quickly as desired.
No. An individual can only acquire $10k a year... whether they buy it themselves or receive as gifts.

I suspect that if someone received more than $10k in gifts then the gifts would be reversed by TD (eventually anyway).

The last part is why many of us are being judicious on how many years of deliveries that we buy for gifts.
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ibond stuff
Old 06-21-2022, 07:23 PM   #104
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ibond stuff

Well, current ibonds do have a negative real rate of return after taxes, but I can think of a lot of good reasons to hold them, if even just for an emergency fund. I agree the real return (<0 real) is not a recipe to get wealthy. Now, that being said, the "Risk Adjusted" return on these suckers is excellent. Basically Zero risk and comes close to keeping up with inflation. Also, the overall risk adjusted return of the entire portfolio is what matters, so they could certainly have a place. Also, they serve to "extend" your tax protected space since taxes are deferred until redemption. One last thing, during times of deflation, you will never get back less than the face value.

But what about TIPS? Everything with 5 year maturities and up last I looked had a positive real return after inflation. You need to hold them in a tax protected account due to the phantom tax issues. As for return of principal you also might want to buy new issues at auction and hold to maturity. In times of deflation, you can lose the inflation increased principal value, so some risk here, especially if bought in the open market after an increased inflation adjustment to the principal.

A couple more thoughts on i bonds:

1) I haven't done this, but I understand the preferred way to purchase with a tax return is to do your taxes like normal (in march, whatever), then file an extension and make a payment with enough extra to buy the $5k of ibonds plus a little more. Then, a week or so after the money has left your checking account, file your taxes requesting the $5k in i bonds. No need for estimated taxes

2) You can buy 10k of i bonds as an individual, through a revocable trust, and if you are a business owner, through a business. If you are married and you have two or three trusts (not uncommon), you can see where this can get to $60k without any gifting ($20k/person, $30k/trusts, $10k/business).

3) As others have noted I have no idea where to get a guaranteed risk free rate of return (yes, i know less than 0 real) i bonds are giving right now with no risk. Yes, it's the unexpected high inflation that created this situation, but I can rid myself of them 1 year after purchase if I wish, or more likely one year and 3 months if inflation cools and the rate on the bond is adjusted lower

4) If these things ever start paying real rates above inflation again, they would be that much more interesting.

OK, that's enough, just my $0.02. It's worth what you paid for it
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Old 06-22-2022, 12:45 PM   #105
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...since taxes are deferred until redemption. One last thing, during times of deflation
Just to clarify. Taxes on I-bonds can be declared every year of ownership instead of all at once at redemption/maturity.

This can be advantageous if one, or more likely one's kids, are in a 0% tax bracket for many years.
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question about ibond in tax return
Old 06-22-2022, 01:00 PM   #106
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question about ibond in tax return

For any who have gone this route (forgive me if it's earlier in this thread)...we filed a month or so ago and overpaid by ~$4500. Our cpa marked the box or form to request refund back via iBond.

So, I think I read that arrives as a paper document (the iBond)? We have online iBonds but didn't provide account numbers I don't think. Any feedback on time frame of receiving the iBond? Arrives by USPS? (yikes...that doesn't feel secure)
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Old 06-22-2022, 05:17 PM   #107
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Just to clarify. Taxes on I-bonds can be declared every year of ownership instead of all at once at redemption/maturity.

This can be advantageous if one, or more likely one's kids, are in a 0% tax bracket for many years.
Yes, this is true, and I believe there is also a clause that they can be used tax free for education in some cases.
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Old 06-22-2022, 06:02 PM   #108
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Please note that it is not guaranteed that you will get exactly a 0% real return on I-bonds over the course of ownership. The most opportune time to purchase I-bonds is when inflation is peaking then slowly declining.

For example, the current rate on I-bonds is 9.62% annualized. If inflation runs at, say, 8% for the 6 months after you purchase the bond then your real return for those 6 months will be 9.62% - 8% = +1.62%. At that point the I-bond rate drops to 8%. If over the next 6 months inflation runs at 7% then you will have a +1% real return over those 6 months.

Of course, the math works against you if you are buying and the inflation rate is constantly rising. Over the long haul it should just about even out, but overall the best time to buy I-bonds is when inflation is peaking. Of course, nobody knows exactly when inflation will peak.

If your personal inflation rate is lower than the official rate (because nobody consumes goods and services exactly in the same proportions as the BLS calculation assumes and price inflation on individual components vary from region to region) then you will do even better.
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Old 06-22-2022, 06:15 PM   #109
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Maybe this is just a really unusual time, but it seems like when inflation surged so quickly that savings rates haven't adjusted up yet it was also a very opportune time.
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