Series I savings bonds

[Viktor K]

Are these good for capital preservation? It looks like they're indexed to inflation and have a short time horizon (1 year to 40 years).

Somewhat related, Vanguard High-Yield Tax-Exempt Bond Fund has poor returns and isn't indexed to inflation. Wouldn't that fund be a worse choice?

Edit: found this thread already covering this: viewtopic.php?p=250885&hilit=Series+I+s ... ds#p250885

[Humanofearth]

Indexed to CPI As a measure of inflation. Monetary supply would be a more accurate measure of inflation and the S&P500 tracks this quite well.

CPI is based off substitution so if one year the price of rib eye steaks doubles, they can say that customers will buy less rib eye steak and more burgers so prices barely increased. When burgers go up, they can go to chicken, then to cricket steaks and soy burger then say the price barely increased because price of crickets and soy are a little more than what rib eye used to cost. Gas goes up, take the bus in substitution. Energy went up too much and isn’t replaceable, remove it from the equation and say it’s too volatile. They also account for deflation with tech.

I honestly have no idea why you’d buy bonds at your age beyond it being what everyone says to do. Gainless risk. If you want safe liquidity, keep dollars in a bank or backed stables pool.

The high yield fund is high risk. Up crypto or stocks before that.

[jacob]

Are these good for capital preservation? It looks like they're indexed to inflation and have a short time horizon (1 year to 40 years).

See https://www.amazon.com/Risk-Less-Prospe ... 118014308/

Be very careful about the tax implications of where you're buying these (tax deferred/taxable)! In some types, the inflation adjustment happens on the principal. In others on the income. Owning a bond in the wrong place will lead to extra tax reporting.

IIRC, I-bonds should be in a taxable account, whereas TIPS should be in a tax deferred account, but don't quote me on that and best verify before committing.

[giskard]

I'd buy gold or bitcoin first, but that's just me. They are indexed to the CPI which dramatically understates inflation. This is probably one of the worst periods of time in all of recorded history own bonds in terms risk / reward ratio. There is fat left tail currency risk that is very real.

[2Birds1Stone]

They are paying 7.12% right now and about to 9.X% for the following 6 months. Certainly better than sitting on cash or CD/treasuries with current rates.

[WFJ]

Series I can only be bought in a taxable account and only on Treasury Direct website. TIPS in a taxable account may create some complex tax implications for those trying to maximize ACA subsidies, LTCG or any tax minimization strategies. I started buying Series I in 2022 (should have done it in 2021) and have a small amount in 5-year TIPS in an IRA and may increase this after some experience with this investment.

[Viktor K]

What does it mean Series I have to be in a taxable account? Is there more to it than purchasing on the website? I was considering both of these as an inflation-indexed assets with less volatility than the rest of my portfolio.

The “tax exempt” portion of the vanguard bond fund I assumed lowered tax implications (important now but not necessarily in retirement) and also would add some
Inflation protection relative to something like a savings account.

For e.g. withdrawing in down years in retirement.

[Chris]

What does it mean Series I have to be in a taxable account? Is there more to it than purchasing on the website?

Savings bonds (Series EE and Series I) can't be held in a retirement account, so this isn't a concern. For most bonds (or bond ETFs), interest earned will be taxable when the interest payment is made (if not held in a retirement account). This isn't an issue for savings bonds, since interest is taxed only once the bond is redeemed or at maturity.

To summarize: savings bonds are held in a taxable account, but interest accrues tax-deferred.

[Viktor K]

Okay that makes sense

[jacob]

Note that inflation protected bonds can be sneaked into a retirement account using ETFs. That's when trouble [potentially] begins ...

[MBBboy]

I think I bonds are a great deal right now (have been since last year). I personally backed the truck up and started buying last year. I've used the gift box feature to pre-purchase for 2023 and 2024 as well - my crystal ball got cloudy going forward.

Buy buying ahead in the gift box, I get the 1 year clock on withdrawals started early and also start immediately accruing interest at the current rates. This means that the first 12 months return is already known (blended of 8.x%). I don't know what happens after that, but even if they somehow dropped to 0% the return would still be well over any other risk free option right now.

Important thing to note is that the return can't ever be negative. There is a fixed component and a variable component that make up the returns of the bond. The fixed portion is currently paying 0%, and by law can't even go below that. The variable portion is indexed to inflation, and can also never go below 0. So to your question about capital preservation - these are well suited for the purpose