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Ask HN: Have you bought I bonds yet? Why not?

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Re: Ask HN: Have you bought I bonds yet? Why not?

#61

Post by sf_rob »

timr wrote: post #34
adabyron wrote: post #25

Things I wish I knew earlier. When you buy them, you lock in the current rate for 6 months from the date you purchase & then you get the next rate for 6 months after that. So today you get 9.62% for 6 months, so you'll technically earn 4.81% interest on your money after 6 months from the date of purchase. You'll then get the next rate which is most likely 3% for 6 months (often quoted as 6% annually). This site does…

Yes, I-bonds are a bit of a meme right now, and IMO, overhyped. The other important things to note are that your money is locked for a year from purchase , you incur a penalty (3 months of interest) if you sell before 5 years, and the APY values being quoted are not indexed to inflation. I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Do not buy…

The penalty point is an important one for the above. If you only plan on holding them for the minimum of 12 months and the second half interest rate is 3% then your effective annualized return is 5.48% (1.0962^.5*1.03^.25).

>I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them.

Yes and no, I-bonds use a trailing inflation definition so you receive a real advantaged proportionally to the difference in current and past inflation rates; this is of course speculative.

Re: Ask HN: Have you bought I bonds yet? Why not?

#62

Post by qqqwerty »

bombcar wrote: post #11
freediver wrote: post #8

The cap of $10,000 makes it not very interesting from an investment standpoint. And while the yield is great on paper, it merely lets you keep up with inflation in practice. There are probably better ways to use $10,000 if that is all you have and you are interested in growing money - online courses come to mind.

You can double that and more if you're married, and use the tax refund trick. But the reality is that 10% on 10k isn't a terribly large amount of money at the end of the day.

Well, if you and your spouse had put in 10k at the end of 2021, and again in 2022, and then put another 10k at the start of 2023 you will have built up your I-Bond allocation to $60k in about a 13-14 month timeframe.

What is nice about a position of that size is that that amount is in the ballpark of a typical families expenditures in a year (ignoring the occasional big ticket items like a car), which means you have essentially hedged away your exposure to inflation.

So yeah, $10k is not a lot, but that is an annual limit, not a lifetime limit. And a good way to hedge inflation is to build an I-Bond allocation that is equivalent to your annual expenses which for most households should only take a few years to get to. And an added bonus is that selling your I-Bonds early has fairly minimal penalties and can be sold at face value (i.e. not subject to market swings) so your I-Bond allocation can double as an emergency fund.

Re: Ask HN: Have you bought I bonds yet? Why not?

#63

Post by bombcar »

qqqwerty wrote: post #62
bombcar wrote: post #11

Earlier quoted context omitted.

You can double that and more if you're married, and use the tax refund trick. But the reality is that 10% on 10k isn't a terribly large amount of money at the end of the day.

Well, if you and your spouse had put in 10k at the end of 2021, and again in 2022, and then put another 10k at the start of 2023 you will have built up your I-Bond allocation to $60k in about a 13-14 month timeframe. What is nice about a position of that size is that that amount is in the ballpark of a typical families expenditures in a year (ignoring the occasional big ticket items like a car), which means you have…

Yeah, they can be wonderful; but not everyone will want to bother with them (I find one of the easiest is to just get your tax return in physical bonds if you want to dabble).

Re: Ask HN: Have you bought I bonds yet? Why not?

#64

Post by rufus_foreman »

freediver wrote: post #8

The cap of $10,000 makes it not very interesting from an investment standpoint. And while the yield is great on paper, it merely lets you keep up with inflation in practice. There are probably better ways to use $10,000 if that is all you have and you are interested in growing money - online courses come to mind.

>> it merely lets you keep up with inflation in practice

Merely?

What are some other ways to keep up with inflation with near zero risk?

Re: Ask HN: Have you bought I bonds yet? Why not?

#66

Post by adabyron »

sf_rob wrote: post #61
timr wrote: post #34

Earlier quoted context omitted.

Yes, I-bonds are a bit of a meme right now, and IMO, overhyped. The other important things to note are that your money is locked for a year from purchase , you incur a penalty (3 months of interest) if you sell before 5 years, and the APY values being quoted are not indexed to inflation. I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Do not buy…

The penalty point is an important one for the above. If you only plan on holding them for the minimum of 12 months and the second half interest rate is 3% then your effective annualized return is 5.48% (1.0962^.5*1.03^.25). >I-bonds issued today yield essentially zero percent after inflation, and this will be true for as long as you hold them. Yes and no, I-bonds use a trailing inflation definition so you receive a r…

Just a reminder, it's most likely 6% annualized return for the second 6 months.

Re: Ask HN: Have you bought I bonds yet? Why not?

#67

Post by mNovak »

adabyron wrote: post #25

Things I wish I knew earlier. When you buy them, you lock in the current rate for 6 months from the date you purchase & then you get the next rate for 6 months after that. So today you get 9.62% for 6 months, so you'll technically earn 4.81% interest on your money after 6 months from the date of purchase. You'll then get the next rate which is most likely 3% for 6 months (often quoted as 6% annually). This site does…

I find it easiest right-click>inspect the password field in chrome, and paste my password directly into the html value field.

Another thing to note, if you're particularly trying to load up, is you can buy I-bonds as a 'gift', separate of your individual limit. Specifically you and your spouse can buy $10k each directly, plus each buy $10k as a gift to the other (thus $40k total). You can actually buy >$10k as a gift for someone, but you can't transfer beyond $10k a year to that person, effectively increasing the minimum hold period.

Also a general note - you can enter your payment account electronically, but ever changing it requires mailing a form! So choose wisely.

Re: Ask HN: Have you bought I bonds yet? Why not?

#69

Post by gilch »

[Not investment advice.]

I'm maxed out, and maxed out last year too.

If ones investments are in leveraged instruments like calls and futures, then after levering up to sensible levels of volatility (the Kelly Criterion implies there is a maximum level for ones bankroll and investments, no matter how high ones risk tolerance), one will still have a lot of cash left over that needs to be parked somewhere that at least keeps up with inflation.

I-bonds are attractive for this role because of the retroactive effects of recent inflation. But the cap means it's not enough for all of my excess cash. One who is below that cap might still want to keep a portion in something more liquid. In my case, it's a small enough fraction (because programmers are paid well in America) that I'm not too concerned about the lack of liquidity in the first year.

Re: Ask HN: Have you bought I bonds yet? Why not?

#70

Post by gilch »

freediver wrote: post #8

The cap of $10,000 makes it not very interesting from an investment standpoint. And while the yield is great on paper, it merely lets you keep up with inflation in practice. There are probably better ways to use $10,000 if that is all you have and you are interested in growing money - online courses come to mind.

> And while the yield is great on paper, it merely lets you keep up with inflation in practice.

True in the normal case, when inflation changes slowly, but because the I-Bond rate is computed retroactively, it's a better deal than normal when inflation suddenly increases.

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