Right now, "I bonds" are paying 9.62%, and they are fully guaranteed by the Federal Government! There are some caveats, but we feel they are appropriate for many investors.
One of the few silver linings we can think of in a period of high inflation is the high potential return of I bonds. Right now, I bonds are paying 9.62%, and they are fully guaranteed by the Federal Government! There are some caveats, but we feel they are appropriate for many investors.
- 1. These can only be purchased directly from the Federal Government. Here is a link.
- 2. The maximum investment is $10,000/yr per person.
- 3. The bonds must be held for 1 year.
- 4. If the bonds are liquidated before 5 years, the last 3 months of interest are forfeited.
- 5. The current interest rate is 10%. Every 6 months the interest rate is set.
So, what is the true rate of return on I bonds? Well, let’s examine the worst-case scenario. We know the bond return is guaranteed at 9.62% for 6 months. Then, assume a 0% return for the next 6 months. One stipulation of owning I bonds is that you will forfeit the LAST 3 months of interest if they are liquidated within 5 years. So let’s assume you liquidate after one year, the required holding period of I bonds. This will mean you get 9.62% for 6 months and 0% for 6 months. The rate of return will then be 4.81% for one year. The bottom line is that you are guaranteed a 4.81% return in one year, worst-case scenario! Even if inflation moderates, the return could be much higher. Since I bonds cannot be purchased in an IRA, consider investing non-retirement assets such as cash in I bonds. Again you will need to go to www.Treasurydirect.gov You cannot purchase these bonds through any financial intermediary. Treasury Direct has an information page which can answer many of your questions: https://treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm
If you have any other questions, reach out to your financial advisor, or feel free to reach out to one of the financial advisors at Serving Those Who Serve.
Written by Thomas Lee, CFP, AIF, CHFEBC, Head Financial Planning and Investments, STWS. Tom has been named one of the top financial advisors in the country by both The Financial Times and Forbes (In 2020, Tom was named to the Forbes Best-In-State Wealth Advisors list and in 2019, he was named to the Financial Times Top 400 Financial Advisors.) In addition, he has appeared in Dow Jones and FinancialPlanning.com. Tom graduated Magna Cum Laude from Amherst College, and his investment approach is steeped in academia, utilizing principles from Nobel Prize winners, Harry Markowitz, Daniel Kahneman, and Eugene Fama. Tom also has a personal connection with the Federal Government—his father served 35 years with the Department of Commerce after completing a BA and MA in Economics from Yale University. The Forbes ranking of Best-In-State Wealth Advisors, developed by SHOOK Research, is based on an algorithm of qualitative criteria, mostly gained through telephone and in-person due diligence interviews, and quantitative data. Those advisors that are considered have a minimum of seven years of experience, and the algorithm weighs factors like revenue trends, assets under management, compliance records, industry experience and those that encompass best practices in their practices and approach to working with clients. Portfolio performance is not a criteria due to varying client objectives and lack of audited data. Out of approximately 32,000 nominations, more than 4,000 advisors received the award. This ranking is not indicative of advisor's future performance, is not an endorsement, and may not be representative of individual clients' experience. Neither Raymond James nor any of its Financial Advisors or RIA firms pay a fee in exchange for this award/rating. Raymond James is not affiliated with Forbes or Shook Research, LLC. For more information, visit: https://www.forbes.com/bestin-state-wealth-advisors/#4ed33f6b291dÐ'd. The FT 400 was developed in collaboration with Ignites Research, a subsidiary of the FT that provides specialized content on asset management. To qualify for the list, advisers had to have 10 years of experience and at least $300 million in assets under management (AUM) and no more than 60% of the AUM with institutional clients. The FT reaches out to some of the largest brokerages in the U.S. and asks them to provide a list of advisors who meet the minimum criteria outlined above. These advisors are then invited to apply for the ranking. Only advisors who submit an online application can be considered for the ranking. In 2019, roughly 960 applications were received and 400 were selected to the final list (41.7%). The 400 qualified advisers were then scored on six attributes: AUM, AUM growth rate, compliance record, years of experience, industry certifications, and online accessibility. AUM is the top factor, accounting for roughly 60-70 percent of the applicant's score. Additionally, to provide a diversity of advisors, the FT placed a cap on the number of advisors from any one state that's roughly correlated to the distribution of millionaires across the U.S. The ranking may not be representative of any one client's experience, is not an endorsement, and is not indicative of advisor's future performance. Neither Raymond James nor any of its Financial Advisors pay a fee in exchange for this award/rating. The FT is not affiliated with Raymond James. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance may not be indicative of future results. Holding investments for the longterm does not ensure a profitable outcome. Dollar-cost averaging cannot guarantee a profit or protect against a loss, and you should consider your financial ability to continue purchases through periods of low price levels. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications.
