Savings Bonds?

[turkeyjerky]

Hello,

I was wondering if anyone here is putting any money into US treasury savings bonds? Specifically, I'm thinking of buying 10K in EE bonds, which will double in 20 years, yielding a rate of 3.5% (EE bonds offer a current fixed rate of 0.10%, but the treasury doubles the cash in value after 20 years). I'd probably continue to do this yearly, depending on whether the doubling term remains attractive in compared to long term treasury rates vs I bond rates. It seems like a nice way to lock in greater than current (guaranteed) rates, while also a hedge against poor growth or deflation. At my current savings rate, and asset location, this would make up approximately 1/3 of my bonds.

Any thoughts? Thanks

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[sazerac]

Hello,

I was wondering if anyone here is putting any money into US treasury savings bonds? Specifically, I'm thinking of buying 10K in EE bonds, which will double in 20 years, yielding a rate of 3.5% (EE bonds offer a current fixed rate of 0.10%, but the treasury doubles the cash in value after 20 years). I'd probably continue to do this yearly, depending on whether the doubling term remains attractive in compared to long term treasury rates vs I bond rates. It seems like a nice way to lock in greater than current (guaranteed) rates, while also a hedge against poor growth or deflation. At my current savings rate, and asset location, this would make up approximately 1/3 of my bonds.

Any thoughts? Thanks

If you can confidently predict that you won't need the money for the next 20 years, go for it.

I've been a professional investor for nearly 20 years now, and when I look back on various major events like 1 divorce, 2 marriages, 3 houses, 2 recessions, 3 children (going to college in <20 years), etc., I just can't justify the lack of liquidity that a series EE offers. Maybe your life is more stable than mine?

The fact that you are even asking this question, and that you have a good idea what your bond allocation will be, means that you are ahead of 95% of the public (hell, you are probably ahead of 95% of the investors out there). Calculate how much additional money your plan will generate versus blindly investing in Vanguard Total Bond, and then ask yourself if the risk of no liquidity EE bonds is worth it to you. In my case, albeit via a retrospective analysis , the answer was no.

 

[QofQuimica]

I think it depends on what your goal is for the money, and, as pointed out by sazerac, what you expect your need for the money to be. It's basically like a 20 year CD that way: you put the money in, but the doubling doesn't happen until year 20. So even though you can take the money out after the first year (with penalty), it will NOT be receiving 3.5% interest at that point. If you want to buy US savings bonds, and you aren't sure that you'll be able to wait the full twenty years, you might want to consider getting I bonds instead.

FWIW, I started buying $10k of both types every year when I became an attending. I went into it planning to cash the I bonds first and hold the EE bonds for the full 20 years. And yes, my life is much more stable than sazerac's is, so that point of his is also well taken.

 

[turkeyjerky]

Thanks,

Yeah I understand the lack of liquidity and the length of investment (I don't plan on selling any assets over the next twenty years, tbh). Q, would you mind elaborating on your decision to buy 10k of each every year? I've been perusing various forums boggle heads, Reddit) and haven't seen that many examples of people doing this, which I've been actually surprised about since I learned of these.

 

[QofQuimica]

Thanks,

Yeah I understand the lack of liquidity and the length of investment (I don't plan on selling any assets over the next twenty years, tbh). Q, would you mind elaborating on your decision to buy 10k of each every year? I've been perusing various forums boggle heads, Reddit) and haven't seen that many examples of people doing this, which I've been actually surprised about since I learned of these.

I'm kind of surprised too, TBH. It seems like I bonds are fairly popular among high income earners on Bogleheads since they allow one to have an additional $10k in tax-deferred space. (You have an option to pay tax on your gains yearly, but of course that would be silly to do for someone who is earning a six figure income.) I've also seen people advocating using I bonds as part of their emergency fund. But I see very few professionals buying EE bonds. Probably sazerac hit upon many of the reasons.

In my case, both types of bonds are part of my early retirement/semi-retirement plan. I am getting ready to turn age 42 and will be semi-retiring at the end of this year. So my income is about to go way down, but I will still be buying I bonds and EE bonds throughout most of my 40s. I am planning to use both the I bonds and the EE bonds as a hedge for income during my fifties and sixties. Basically I will be using the I bonds from age 49-58, the EE bonds from age 59-69 (buying one extra one), and then taking SS starting at age 70. The bonds will obviously not cover my entire living expenses, but they will cover a good chunk of them and mitigate the risk of having to sell off a bunch of assets during a market downturn.