I Bonds vs TIPS

[RunningBum]

I didn't mean to say that bonds provide inflation protection. What I meant was that for whatever reason you are making a particular investment, making only a small investment doesn't do much to meet that objective, but even a little bit is better than nothing.

I just wanted to clarify what I meant, and not have any confusion that I think bonds are an inflation hedge.

 

[RxMan]

I used to buy a small amount of iBonds when I had received cash back from my credit card rewards. I bought mostly in 2006 and 2007 with one very small purchase in 2013. I think total I’ve bought $850 worth of them with a current value of around $1260.

I may look into buying a little bit now. I just hadn’t thought about them for years but with other stable value investments returning such low rates it seems like a good time to give them another look.

Right now it is hard to stomach buying any with a zero fixed rate component. Seems like the Nov 18 and May 19 iBonds with 0.5% fixed rate was the recent buying opportunity for iBonds. Maybe the fixed rate will go up in May and I can buy a little bit.

 

[tdv2]

The only downside I see with Ibonds, as other have suggested is the purchase limit. For a couple that would be $20k per year....for me that's not significant....about 10% of my annual spend. But since I opened a treasury direct account, I am buying the annual limit in my and DW's account. It's just a few clicks of the mouse. Just like any other investment, over time it will increase, I will add every year. This year was the first time I got a refund on my federal return in, I can t remember how long....overpaid my estimated, took the refund in Ibonds. Sure I would like to buy $500k to $1000k for true inflation protection....that will just have to be reserved for tips. YMMV.

 

[lawman]

I too am concerned about getting mine cashed. I can't find a bank that will do it and I'm not about to trust the mail to get them where ever it is they need to go...

 

[Chuckanut]

Here's a quote from the recent TIPS Watch blog:


https://tipswatch.com/2023/06/27/followup-bloomberg-reports-huge-outflows-from-tips-funds/

Final thoughts

Although I don’t invest in TIPS funds other than Vanguard’s short-term fund, VTIP, I don’t think this is a particularly horrible time to be putting money into those investments. The TIP ETF is trading today at $107.67, compared to the all-time high of about $131 it hit two years ago, in July 2021.
Because real yields have increased so dramatically over the last 15 months, a lot of the “high” risk has been washed out of these funds. Of course, rates could continue climbing higher. If a recession strikes and interest rates begin falling — and especially if the Federal Reserve caves in and starts bond-buying — these TIPS funds will do very well.

But I think we can eliminate the idea of a Federal Reserve “rescue” through the rest of 2023 and probably into 2024. And if inflation slides into a range around 3%, these TIPS funds won’t deliver outstanding performance.
That doesn’t take away from the appeal of individual TIPS, with good real yields, held to maturity. That’s a winner’s bet.