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Anybody buying this year? Seems like a no brainer.
I just checked our two accounts and found they have different values although we bought $10,000 in 2021 and 2022 on the same days. Should interest be the same?
We will be buying I bond this year. It will be paying 6.8% for the inflation.
TreasuryDirect is running slow and not getting all accounts updated on a timely basis. Check again today or tomorrow and both accounts should be identical.
I plan to purchase I-Bonds at the end of January¹. The current interest rate for I-bonds issued from November 1, 2022 to April 30, 2023 is 6.89%. This interest rate is comprised of the semiannual inflation rate (3.24%) and the fixed rate (0.40%).
¹ I-Bonds purchased late in the month will earn interest for the entire month.
My plan WAS to buy I-Bonds in 2023, but stingy rate on 11/1/22 changed that. IMO, 5-yr TIPS held to maturity are better (1.66% real rate plus CPI) OR I may just feed the bear a bit (-:).
Are you all in? One can overpay one's taxes by $5K by making an estimated payment on or before January 17th. That enables you to buy an extra $5K in savings bonds with the refund, though they will come in paper form.
A downside is that you'll lose a couple of months of interest before the savings bonds are issued. Say 2/12 x 4% or about 2/3 of a percent in forgone interest. Still seems worthwhile.
Unfortunately, with what has become typical government efficiency, last year the USPS lost one of the dozen paper bonds sent and the Treasury Dept has yet to complete processing my claim for the missing $50 savings bond.
My plan WAS to buy I-Bonds in 2023, but stingy rate on 11/1/22 changed that. IMO, 5-yr TIPS held to maturity are better (1.66% real rate plus CPI) OR I may just feed the bear a bit (-:).
Same here. Plus, the new rate in May seems pretty likely to be even more underwhelming.
Can someone explain why TIP bond prices are so volatile and trending downward in this high inflation environment? I am trying to ignore the TIP bond price on my statement.
@Sven, as noted before, TIPS held to maturity capture initial real rate plus CPI, but TIPS funds are affected by both rates and duration. I have mentioned 5-yr TIPS often as it is easier to hold them to maturity; individual TIPS will also see fluctuations in brokerage statements but will pay up at maturity (par + inflation adjustment).
Thank you, @Observant1. Just read it. Really good shit! I'm convinced. I rather think I might go with SCHP, instead of his recommendation: LTPZ. Yes, the Schwab etf is a diverse basket of maturities, it's true...
@Sven, I-Bonds and ST-TIPS (held to maturity) are for safer money. They try to pick up CPI + a few bps (40 bps for I-Bonds, 165 bps for 5-yr TIPS, 1/3/23).
LT-TIPS are for speculative money. I doubt that investors buying 20 or 30 year TIPS will hold them to maturity. In that case, BOTH will be subject to rate changes and duration - very volatile.
Personally, I would rather speculate with equities.
I was wondering if it would be possible or wise if it is possible to match a long-term bond with a comparable yield to one’s mortgage. That way an investor would have a more liquid vehicle—the bond—to cancel out the mortgage interest cost instead of paying off the mortgage to do that and then having an illiquid investment in one’s house. Of course because the CPI is variable, this strategy wouldn’t work with long term TIPS. Yet the strategy doesn’t seem speculative to me, but one to match an investment to the goal of gradually paying off the house without locking up your liquid assets in the house. I guess this is a lengthy way of saying if you have a long investment time horizon a long dated asset to match it isn’t necessarily speculative.
Liability matching is possible. But mortgages are at spreads over Treasuries or inv-grade bonds, so it may require MORE than the mortgage balance to cover mortgage payments. If one has that much liquid money around, then why get the mortgage? Just pay cash.
On the other hand, if one has an annuity, then one may commit those payouts to any fixed obligations such as mortgage payments.
Howdy @LewisBraham Perhaps I've missed the point of your query, but we simply paid down mortgages early; as allowed with 'extra' monthly monies not needed for other expenses. This is a form of investing, via reducing the total interest of the mortgage load. Yes, we 'lost' the mortgage interest deduction for itemized deductions; but the outcome was still favorable with eliminating the mortgage payment very early. NOTE: some mortgages may include an early pay off penalty.
The reason is that a house, and a primary residence especially, is the ultimate illiquid investment. If you pay down your mortgage and have little cash left over afterwards you are what is often called house rich but cash poor. If you suddenly need that cash you put towards your house to live off, you’ve got a problem. You effectively can be forced to sell your home to pay for daily living experiences. A high quality bond by contrast is much more liquid.
Yes, I agree with you to this point about primary housing. We've not held individual U.S. gov't bonds in a taxable account; but I recall the ordinary dividends (paid two times a year?) are taxable at a Federal level annually, but not at the state and local levels; although one doesn't actually receive the dividend. I stand corrected, if I misunderstand this tax point.
When I looked at buying TIPS in secondary market, there was a large additional principle payment attached to the price. Is this the recompense to the original owner for the added principle as inflation rises?
It was hard to figure out what the actual price and YTM would be, even if inflation was flat.
Am I correct that purchasing at auction eliminates this?
Comments
TreasuryDirect is running slow and not getting all accounts updated on a timely basis. Check again today or tomorrow and both accounts should be identical.
The current interest rate for I-bonds issued from November 1, 2022 to April 30, 2023 is 6.89%.
This interest rate is comprised of the semiannual inflation rate (3.24%) and the fixed rate (0.40%).
¹ I-Bonds purchased late in the month will earn interest for the entire month.
If real yields are still attractive later this year (after my T-Bills mature), I may purchase 5-Yr TIPS.
Are you all in? One can overpay one's taxes by $5K by making an estimated payment on or before January 17th. That enables you to buy an extra $5K in savings bonds with the refund, though they will come in paper form.
A downside is that you'll lose a couple of months of interest before the savings bonds are issued. Say 2/12 x 4% or about 2/3 of a percent in forgone interest. Still seems worthwhile.
Unfortunately, with what has become typical government efficiency, last year the USPS lost one of the dozen paper bonds sent and the Treasury Dept has yet to complete processing my claim for the missing $50 savings bond.
https://www.irs.gov/payments/direct-pay
https://stockcharts.com/h-perf/ui?s=VTIP&compare=$$CPI,TIP&id=p68844356064
"My January MFO article, out soon, focuses on long dated TIPS bonds. I hope you find it useful."
I'll be interested to read it. Currently I'm scoping out SCHP, Schwab's TIPS etf.
Devesh's TIPS article is now available.
It's a good read.
Link
Just read it. Really good shit! I'm convinced. I rather think I might go with SCHP, instead of his recommendation: LTPZ. Yes, the Schwab etf is a diverse basket of maturities, it's true...
Not STIP?
You're right - LTPZ is very volatile!
https://tipswatch.com/2023/01/03/i-bonds-a-not-so-simple-buying-guide-for-2023/
BTW, as I have mentioned here and elsewhere I now prefer 5-yr TIPS held to maturity - they capture attractive 5-yr real-rate + CPI.
LT-TIPS are for speculative money. I doubt that investors buying 20 or 30 year TIPS will hold them to maturity. In that case, BOTH will be subject to rate changes and duration - very volatile.
Personally, I would rather speculate with equities.
https://stockcharts.com/h-perf/ui?s=VTIP&compare=$$CPI,TIP,LTPZ&id=p52415712751
On the other hand, if one has an annuity, then one may commit those payouts to any fixed obligations such as mortgage payments.
Perhaps I've missed the point of your query, but we simply paid down mortgages early; as allowed with 'extra' monthly monies not needed for other expenses. This is a form of investing, via reducing the total interest of the mortgage load. Yes, we 'lost' the mortgage interest deduction for itemized deductions; but the outcome was still favorable with eliminating the mortgage payment very early. NOTE: some mortgages may include an early pay off penalty.
AARP Mortgage Payoff Calculator
It was hard to figure out what the actual price and YTM would be, even if inflation was flat.
Am I correct that purchasing at auction eliminates this?