Archives for November 2017

IKEA In-Store Discount 2017: $25 off $150 Coupon

Posted on November 12, 2017 // 2 Comments

ikea0This weekend only, IKEA has a printable $25 off $150 coupon [pdf] that is valid through 4/22/18. The coupon states that you can also show it on your phone at checkout. Valid in US stores only. Here is selected fine print:

Not valid on IKEA Kitchen Event offer, IKEA services, Eat for Free or Kids Eat Free IKEA Food Offers, IKEA FAMILY Individual Kitchen Planning Service Offer or in the IKEA Restaurant or Swedish Food Market. Not valid on previous purchases or the purchase of IKEA Gift Cards.

IKEA coupons are pretty rare, other than their ongoing $25 off $250 moving coupon.

Filed Under: Deals & Offers //

Is Taking All Your Money Out of the Stock Market Ever A Good Idea?

Posted on November 8, 2017 // 19 Comments

timemoneylogoIf you enjoy financial success stories from people with modest incomes, check out the Time Money article I Took All My Money Out of the Stock Market and It Feels Amazing. Yes, the title is a bit clickbaity, but it’s still worth a read.

Rosalind Warren combined her personal savings with a modest inheritance, invested it in low-cost index funds, and left it alone for a long time. These are exactly the three things that the prudent DIY investor is supposed to do. (She even used Vanguard index funds. Future spokesperson?)

Here’s how $10,000 invested in the mentioned Vanguard Balanced Index Fund would have done since its 1992 inception (via Morningstar):

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The frugal librarian is now age 62 with a paid-off house, no debt, and a “high six-figure” nest egg. However, she differs from the prototypical retiree in that she recently sold off all her stocks:

I once figured out exactly how much money I would need to live on — not lavishly, but comfortably — for the rest of my life. I promised myself that once I had that amount, I would actually do just that — take my money out of the market and live on it for the rest of my life.

Last week, I reached that goal.

I’m 62. I’ve spent decades caring about the market. I counted on it to make me enough money so that I’d be able to cash in my chips and walk away when I hit retirement age.

And so it did.

And now? It’s time for this librarian to declare victory and get the hell out.

Having zero stock holdings is not something that would usually be recommended by professional financial planners. Most would recommend at least some small allocation to stocks. But you know what? If you read the entire article, Warren shows that she has done her research and appears to understand the angles. She’s not stuffing the money in a mattress. She’s not panicking or predicting a crash. She’s shown that she can control her spending.

Her portfolio now consists of U.S. Treasuries, Treasury Inflation-Protected Securities (or TIPS bonds), and laddered CDs. First, this shows she knows that the biggest danger of not having any stocks is inflation. Second, it also shows she has the financial knowledge to counter that risk. If she’s holding TIPS and laddering CDs with the top rates, her money should at least keep up with inflation (although she admits it won’t grow much past that).

Even if her portfolio only manages to barely keep up with inflation and she lives another 33 years to age 95, simple math shows that she can still theoretically take out 3% a year (100% divided by 33). I don’t know exactly what “high six-figures” means, but $800,000 times 3% = $24,000 per year. There is the possibility that she might need more money than that, but there’s also the possibility that stocks perform even worse than her bonds/CD portfolio. She’s also still working and not taking withdrawals yet.

I don’t see any problem with not holding any stocks in this specific situation. Rosalind Warren has a steady job she intends to keep working at, the ability to defer Social Security until age 70 (maxing out her lifetime inflation-linked benefit), no debt, a paid-off house, and another $20,000 to $30,000 a year she can withdraw in the future. Equally important, not having to pay attention to market fluctuations gives her peace of mind. What do you think?

Filed Under: Investing, Retirement //

Groupon: Free 60-Day Kindle Unlimited Membership w/ Finance Book List

Posted on November 7, 2017 // 1 Comment

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Groupon is offering a Free 60-Day membership to Kindle Unlimited. You must not have had been a KU subscriber within the last 12 months. A Kindle Unlimited (KU) subscription usually costs $9.99 a month and includes free access to a special library of over 1 million eBooks, thousands of audiobook narrations, and current issues of various magazines. As with Netflix, when the membership ends, your ability to read the books end as well.

After making the purchase, you must “view” the voucher and redeem the unique code here. Note that you must link a credit card and they will charge you $9.99 a month after the initial 60 days by default. To prevent this, you can visit here and cancel the auto-renewal. It will says something like “Your benefits will continue until January 6, 2018, after which your card will not be charged and your membership will end.”

What books are included? You can view all Kindle Unlimited books here. You can search Kindle Unlimited titles here after clicking the “Kindle Unlimited Eligible” box on the top-left. There are is a mix of a few bestsellers, some older classics, and a lot of independently-published titles of varying quality. Here are some finance-related titles that caught my eye:

Kindle Unlimited authors get paid per page that is read. Therefore, your reading can support their efforts.

Filed Under: Book Reviews, Deals & Offers //

Vanguard Interactive Ad: $1 Million Is Closer Than You Think

Posted on November 7, 2017 // 2 Comments

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Vanguard has a new full-page interactive ad in the NY Times online with the heading $1 Million Is Closer Than You Think. This is one of those expensive ads that I feel ambivalent about as a investor-owner of Vanguard. I’d rather they rely on word-of-mouth (like from yours truly) and focus more on the customer experience. Will the slick design attract new money and lower expense ratios? At least it promotes the types of things that I support:

  • Save more. Increase your regular contributions. Track your overall saving rate.
  • Keep costs low. Watch your management fees and other costs affecting your portfolio.
  • Stay the course. Don’t react to the market and chase what’s hot.

Filed Under: Investing, Retirement //

Which Index Fund Companies Are Most Aligned With Individual Investors?

Posted on November 6, 2017 // 3 Comments

mstarlogoYou’ve decided that low-cost index funds are the way to go. Which index fund company do you pick? Morningstar has a new research paper titled Partnering With Passive Fund Sponsors That Have Your Back:

Successful investing hinges on putting yourself in the best position to maximize favorable outcomes. Beyond selecting a fund that tracks a well-constructed index and charges a low fee, choosing a fund sponsor that aligns its interests with its fundholders’ increases the odds of a positive investor outcome. Our research found that purveyors of passive funds that align their incentives with those of their fundholders have generated better category-relative risk-adjusted performance on average than funds from firms that seem to prioritize their own interests over investors’.

Here are the characteristics that they felt showed “alignment”:

  • Charging low expense ratios
  • Sharing a greater portion of generated securities-lending revenue
  • Maintaining a disciplined approach to product development
  • Investing in portfolio management infrastructure

After finishing the entire paper, my primary takeaway is that most of the big companies are doing a pretty good job. Vanguard, Fidelity, and Schwab are probably the most aligned. DFA is good in many areas but they do charge higher expense ratios for their factor-tilted passive funds (though past performance has also been higher). Blackrock has some good characteristics but also does a few questionable things like creating a cheap version of a successful ETF, which still charging as much as they can on the old ETF.

Index tracking quality. Here’s a chart of how well each firm tracked their underlying indexes over the past 5 years. Tracking errors are now very low across the board.

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For the most part, competition is working and industry practices are converging. The paper notes that State Street has historically been the worst at lowering expense ratios over the last 10 years. The next thing I see? State Street announces their new suite of low-cost SPDR Portfolio ETFs.

TIAA is NOT a non-profit. The Morningstar paper states that TIAA is a nonprofit. However, according to this recent NY Times article, TIAA stopped being a non-profit in 1997 and has been accused of touting its “nonprofit heritage” while pushing higher-cost investment products:

Even though TIAA stopped being a nonprofit organization in 1997, many of its customers might think it remains one. The company’s website ends in a .org rather than a .com and TIAA repeatedly refers to its “nonprofit heritage.”

Most of TIAA is for-profit. Teachers Advisors, for example, is an investment advisory firm that receives compensation from each in-house mutual fund it manages. Nuveen, a mutual fund company purchased by TIAA in 2014, is also run on a for-profit basis. So is EverBank, a Florida banking institution TIAA acquired in June.

Bottom line. Morningstar did not provide final rankings, but my interpretation of Morningstar data is that these firms show the most investor-aligned practices: Vanguard, Fidelity, and Schwab. Based on my own observations, I would be most comfortable having my money held with these firms as well. DFA and Blackrock are not that far behind.

Filed Under: Investing //

Amazon Assistant Browser Extension: $5 off $25 Promotion (Back Again For Some)

Posted on November 5, 2017 // 5 Comments

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Promo is back, supposedly for new customers but may work if you uninstalled it previously. I was just able to do again myself for another easy five bucks. Amazon Assistant is a browser extension for most popular web browsers. I usually don’t like these “helpers” as they slow down my computer and track my every movement even more than usual, but Amazon is offering a $5 off $25 coupon for new users. You can always un-install or disable it after you use up the coupon. Here’s how to get the promotion applied to your account:

  • Install the Amazon Assistant browser plugin. (Here is an alternate link if that first one doesn’t work.) When complete, you should see a little Amazon Assistant “a” icon on your top right of your browser.
  • Make sure you are signed into your Amazon account. Click on the Amazon Assistant “a” icon on the top right, and scroll through the introductory tutorial.
  • Click on the “Redeem offer now” button to apply the credit to your account.

azassist

Add items to your cart initiated within the plugin (do a search for what you want). During checkout, look for $5 off your next $25 purchase. Your cart must contain physical goods sold by Amazon.com. Here is a link to all the promo details.

Filed Under: Deals & Offers //

Morningstar Top 529 College Savings Plan Rankings 2017

Posted on November 5, 2017 // 3 Comments

mstarlogoInvestment research firm Morningstar has released their annual 529 College Savings Plans Research Paper and Industry Survey. While the full survey appears restricted to paid premium members, they did release their top-rated plans for 2017. This is still useful as while there are currently over 60 different 529 plan options nationwide, the majority are mediocre and can quickly be dismissed.

Here are the Gold-rated plans for 2017 (no particular order). Morningstar uses a Gold, Silver, or Bronze rating scale for the top plans and Neutral or Negative for the rest.

The Bright Start College Savings Plan from Illinois was upgraded to Gold this year due to a manager change and thus an entire new set of investment options and age-based tracks. The new plan is cheaper and removed a $10 maintenance fee. The other 3 plans were Gold last year as well.

Here are the consistently top-rated plans from 2011-2017. This means they were rated either Gold or Silver (or equivalent) for every year the rankings were done from 2011 through 2017. No particular order.

  • T. Rowe Price College Savings Plan, Alaska
  • Maryland College Investment Plan
  • Vanguard 529 College Savings Plan, Nevada
  • CollegeAdvantage 529 Savings Plan, Ohio
  • CollegeAmerica Plan, Virginia (Advisor-sold)
  • Utah Educational Savings Plan

The “Five P” criteria.

  • People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?
  • Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?
  • Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.
  • Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term? Is it judged likely to continue?
  • Price. Includes factors like asset-weighted expense ratios and in-state tax benefits.

State-specific tax benefits. Remember to first consider your state-specific tax benefits that may outweigh other factors. If you don’t have anything compelling available, you can open a 529 plan from any state (I would pick from the ones listed above). Also, if you like an in-state plan now but your situation changes, you can roll over your funds into another 529 from any state.

My picks. Overall, the plans are getting better and most Gold/Silver picks are solid. If your state doesn’t offer an significant local perks, I narrow things down and recommend these two plans to my friends and family:

  • Nevada 529 Plan has low costs, solid automated glide paths, a variety of Vanguard investment options, and long-term commitment to consistently lowering costs as their assets grow. This is only plan that Vanguard puts their name on, and you can manage it within your Vanguard.com account. This is the keep-it-simple option.
  • Utah 529 plan has low costs, investments from Vanguard and DFA, and has highly-customizable glide paths. Over the last few years, the Utah plan has also shown a history of passing on future cost savings to clients. This is the option for folks that enjoy DIY asset allocation.

I feel that a consistent history of consumer-first practices is most important. Sure, you can move your funds if needed, but wouldn’t you rather watch your current plan just keep getting better every year?

Filed Under: College & Education, Investing //

All-Clad VIP Factory Seconds Sale: Next One 11/6-11/8

Posted on November 2, 2017 // 7 Comments

allcladvipAll-Clad cookware is known to be very high quality, but also quite expensive. If you cook regularly, you can justify the high price with the fact that the stainless steel pots and pans will essentially last forever. (I would skip the non-stick stuff, even anodized won’t last forever.)

HomeandCooksales.com is how All-Clad unloads their products with slight cosmetic blemishes. All sales final. However, you still get the same limited lifetime warranty as if you’d bought them at Williams-Sonoma. Really, who cares about dents and scratches when it comes to cookware?

The products which are for sale on this site are FACTORY SECONDS. They have minor cosmetic scratches and/or dents. There are no defects which will affect the cookware’s performance. For this event, all sales are final, no returns will be accepted.

The next big sale is 11/6-11/8 but you can see some items available now with the passcode ACVIPNOV17. To get future passcodes and reminders, send an e-mail to allcladvipfactorysale@groupeseb.com to get on their mailing list.

I would still compare prices before purchasing. Amazon has been known to make price drops in response to these sales, and those items are not factory seconds (and also accept returns). You can also get 5% back at Amazon with an Amazon Prime credit card or Discover It card this quarter.

I’ve been slowly accumulating my “permanent cooking portfolio” of All-Clad pots/pans and Le Creuset/Staub dutch ovens. I recommend buying some Bar Keepers Friend as it helps wash off the stuck bits on stainless steel. Also good on bath tubs, kitchen sinks, and stove tops.

Filed Under: Deals & Offers //

Tulip Fever Movie: Love and Economic Bubbles

Posted on November 2, 2017 // 5 Comments

tulipIf you’ve read enough investing books, you know about the “Dutch Tulip Mania” of the 1600s (Wikipedia) and how it was considered one of the first documented economic bubbles. At one point, 12 acres of land were exchanged for a single tulip bulb.

I was catching up on my Bloomberg magazines and saw this: Finance Geeks Will Love This New Movie About the Tulip Bubble. The official trailer would indicate it’s mostly a romantic drama, but the article suggests that it weaves in the tulip mania, the “nature of money”, and what “love and money have in common”:

The critic reviews weren’t that great, so perhaps it will end up on Amazon Prime Video or Netflix soon enough.

I believe I first read about tulip mania in the Burton Malkiel classic A Random Walk down Wall Street as an example of the Greater Fool Theory, where you buy something for a high price not due to its intrinsic value, but solely because you think someone else will buy it from you for an even higher price. (Does this apply to iPhone X pre-orders?)

Filed Under: Investing //

Best Interest Rates on Cash – November 2017

Posted on November 1, 2017 // 13 Comments

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Interest rates are slowly inching upwards. Don’t let a megabank pay you 0.01% APY or less for your idle cash. Here is my monthly roundup of the best safe rates available, roughly sorted from shortest to longest maturities. I focus on rates that are nationally available to everyone (not restricted to certain geographic areas or specific groups). Rates checked as of 11/1/17.

High-yield savings accounts
While the huge brick-and-mortar banks rarely offer good yields, there are many online savings accounts offering competitive rates clustered around 1.1%-1.3% APY. Remember that with savings accounts, the interest rates can change at any time.

  • Top rates: DollarSavingsDirect at 1.50% APY. SalemFiveDirect at 1.50% APY. Redneck Bank and All America Bank (they are affiliated) having Mega Money Market accounts paying 1.50% APY on balances up to $35,000.
  • More rates from banks with solid history of competitive rates: CIT Bank at 1.35% APY up to $250k, Synchrony Bank at 1.30% APY, GS Bank at 1.30% APY, and UFB Direct at 1.41% APY ($5k min).
  • I’ve experienced the “bait-and-switch” of moving to a new bank only to have the rate lowered quickly afterward. Until the rate difference is huge, I’m sticking with a Ally Bank Savings + Checking combo due to their history of competitive rates (including CDs), 1-day interbank transfers, and overall user experience. I also like the free overdraft transfers from savings that let’s me keep my checking balance at a minimum. Ally Savings is at 1.25% APY.

Money market mutual funds + Ultra-short bond ETFs
If you like to keep cash in a brokerage account, you should know that money market and short-term Treasury rates have inched upwards. It may be worth the effort to move your money into a higher-yielding money market fund or ultrashort-term bond ETF. The following bond funds are not FDIC-insured, but if you want to keep “standby money” in your brokerage account and have cheap/free commissions, it may be worth a look.

  • Vanguard Prime Money Market Fund currently pays an 1.13% SEC yield. The default sweep option is the Vanguard Federal Money Market Fund, which has an SEC yield of 0.99%. You can manually move the money over to Prime if you meet the $3,000 minimum investment.
  • Vanguard Ultra-Short-Term Bond Fund currently pays 1.57% SEC Yield ($3,000 min) and 1.68% SEC Yield ($50,000 min). The current average effective duration is 1 year.
  • The PIMCO Enhanced Short Maturity Active Bond ETF (MINT) has a 1.54% SEC yield and the iShares Short Maturity Bond ETF (NEAR) has a 1.62% SEC yield while holding a portfolio of investment-grade bonds with an average duration of ~6 months. More info here.

Short-term guaranteed rates (1 year and under)
I am often asked what to do with a big wad of cash that you’re waiting to deploy shortly (just sold your house, just sold your business, legal settlement, inheritance). My standard advice is to keep things simple. If not a savings account, then put it in a short-term CD under the FDIC limits until you have a plan.

  • Ally Bank No-Penalty 11-Month CD is paying 1.50% APY for $25,000+ balances and 1.25% APY for $5,000+ balances. The CIT Bank 11-Month No-Penalty CD is at 1.45% APY with a lower $1,000 minimum deposit and no withdrawal penalty seven days or later after funds have been received. The lack of early withdrawal penalty means that your interest rate can never go down for 11 months, but you can always jump ship if rates rise.
  • GS Bank’s 12-month CD is at 1.65% APY with $500 minimum. For sizeable balances, Advancial Federal Credit Union has a 6-month CD at 1.72% APY ($50k min) and a 12-month CD at 1.87% APY ($50k min). If you don’t otherwise qualify, you can join with a $5 fee to Connex Professional Network and maintaining $5 in a Share savings account. Via DepositAccounts.

US Savings Bonds
Series I Savings Bonds offer rates that are linked to inflation and backed by the US government. You must hold them for at least a year. There are annual purchase limits. If you redeem them within 5 years there is a penalty of the last 3 months of interest.

  • “I Bonds” bought between November 2017 and April 2018 will earn a 2.58% rate for the first six months. The rate of the subsequent 6-month period will be based on inflation again. At the very minimum, the total yield after 12 months will be 1.29% with additional upside potential. More info here.
  • In mid-April 2018, the CPI will be announced and you will have a short period where you will have a very close estimate of the rate for the next 12 months. I will have another post up at that time.

Prepaid Cards with Attached Savings Accounts
A small subset of prepaid debit cards have an “attached” FDIC-insured savings account with high interest rates. The negatives are that balances are capped, and there are many fees that you must be careful to avoid (lest they eat up your interest). The other catch is that these good features may be killed off without much notice. My NetSpend card now only has an eligible balance up to $1,000.

  • Insight Card is one of the best remaining cards with 5% APY on up to $5,000 as of this writing. Fees to avoid include the $1 per purchase fee, $2.50 for each ATM withdrawal, and the $3.95 inactivity fee if there is no activity within 90 days. If you can navigate it carefully (basically only use ACH transfers and keep up your activity regularly) you can still end up with more interest than other options. Earning 4% extra interest on $5,000 is $200 a year.

Rewards checking accounts
These unique checking accounts pay above-average interest rates, but with some risk. You have to jump through certain hoops, and if you make a mistake you won’t earn any interest for that month. Rates can also drop quickly, leaving a “bait-and-switch” feeling. But the rates can be high while they last.

  • Northpointe Bank has Rewards Checking at 5% APY on up to $10k. The requirements are (1) 15 debit card purchases per month (in-person or online), (2) enrolling in e-statements, and (3) a monthly direct deposit or automatic withdrawal of $100 or more. ATM fees are rebated up to $10 per month.

Certificates of deposit (greater than 1 year)
You might have larger balances, either because you are using CDs instead of bonds or you simply want a large cash cushion. Buying finding a bank CD with a reasonable early withdrawal penalty, you can enjoy higher rates but maintain access in a true emergency. Alternatively, consider a custom CD ladder of different maturity lengths such that you have access to part of the ladder each year, but your blended interest rate is higher than a savings account.

  • Advancial Federal Credit Union (see above) has their 18-month CD at 1.96% APY ($50k min) and a 24-month CD at 2.04% APY ($50k min). The early withdrawal penalty is 180 days of interest.
  • Ally Bank also has a 5-year CD at 2.25% APY (no minimum) with a relatively short 150-day early withdrawal penalty and no credit union membership hoops. For example, if you closed this CD after 18-months you’d still get an 1.64% effective APY even after accounting for the penalty.
  • Hanscom Federal Credit Union is offering a 4-year Share Certificate at 2.50% APY (180-day early withdrawal penalty) if you also have Premier Checking (no monthly fee if you keep $6,000 in total balances or $2,000 in checking). HFCU also offers a 3% APY CU Thrive “starter” savings account with balance caps. HFCU membership is open to active/retired military or anyone who makes a one-time $35 donation to the Nashua River Watershed Association.
  • Mountain America Credit Union has a 5-year Share Certificate rate at 2.60% APY ($5 minimum) with a 365-day early withdrawal penalty. Anyone can join this credit union via partner organization American Consumer Council for a one-time $5 fee.

Longer-term Instruments
I’d use these with caution, but I still track them to see the rest of the current yield curve.

  • Willing to lock up your money for 10+ years? You can buy certificates of deposit via the bond desks of Vanguard and Fidelity. These “brokered CDs” offer the same FDIC-insurance. As of this writing, Vanguard is showing a 10-year non-callable CD at 2.65% APY (Watch out for higher rates from callable CDs from Fidelity.) Unfortunately, current long-term CD rates do not rise much higher even as you extend beyond a 5-year maturity.
  • How about two decades!? Series EE Savings Bonds are not indexed to inflation, but they have a guarantee that the value will double in value in 20 years, which equals a guaranteed return of 3.5% a year. However, if you don’t hold for that long, you’ll be stuck with the normal rate which is quite low (currently a sad 0.10% rate). You could view as a huge early withdrawal penalty. You could also view it as long-term bond and thus a hedge against deflation, but only if you can hold on for 20 years. Too long for me.

All rates were checked as of 11/1/17.

Filed Under: Banking, Deals & Offers, Investing //

Savings I Bonds November 2017 Update: 0.1% Fixed, 2.48% Variable Interest Rate

Posted on November 1, 2017 // 16 Comments

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Update 11/1/17. The fixed rate will be 0.1% for I bonds issued from November 1, 2017 through April 30, 2018. The variable inflation-indexed rate for this 6-month period will be 2.48% (as was predicted 😉 ). The total rate on any specific bond is the sum of the fixed and variable rates. See you again in mid-April 2018 for the next early prediction.

Original post 10/15/17:

Savings I Bonds are a unique, low-risk investment backed by the US Treasury that pay out a variable interest rate linked to inflation. You could own them as a replacement for cash reserves (they are liquid after 12 months) or bonds in your portfolio.

New inflation numbers were just announced at BLS.gov, which allows us to make an early prediction of the November 2017 savings bond rates a couple of weeks before the official announcement on the 1st. This also allows the opportunity to know exactly what a October 2017 savings bond purchase will yield over the next 12 months, instead of just 6 months.

New Inflation Rate Component
March 2017 CPI-U was 243.801. September 2017 CPI-U was 246.819, for a semi-annual increase of 1.24%. Using the official formula, the variable component of interest rate for the next 6 month cycle will be 2.48%. You add the fixed and variable rates to get the total interest rate. If you have an older savings bond, your fixed rate may be very different than one from recent years.

Purchase and Redemption Timing Reminders
You can’t redeem until 12 months have gone by, and any redemptions within 5 years incur an interest penalty of the last 3 months of interest. A known “trick” with I-Bonds is that if you buy at the end of the month, you’ll still get all the interest for the entire month as if you bought it in the beginning of the month. It’s best to give yourself a few business days of buffer time. If you miss the cutoff, your effective purchase date will be bumped into the next month.

Buying in October 2017
If you buy before the end of October, the fixed rate portion of I-Bonds will be 0.0%. You will be guaranteed the current variable interest rate of 1.96% for the next 6 months, for a total 0.00 + 1.96 = 1.96%. For the 6 months after that, the total rate will be 0.00 + 2.48 = 2.48%.

Let’s say we hold for the minimum of one year and pay the 3-month interest penalty. If you theoretically buy on October 31st, 2017 and sell on October 1, 2018, you’ll earn a ~1.76% annualized return for an 11-month holding period, for which the interest is also exempt from state income taxes. If you held for three months longer, you’d be looking at a ~1.91% annualized return for a 14-month holding period (assuming my math is correct). Compare with the current best bank interest rates.

Buying in November 2017
If you buy in November, you will get 2.48% plus an unknown fixed rate for the first 6 months. The fixed rate is likely to be zero or 0.1%. (Current real yield of 5-year TIPS is ~0.20%.) Every six months, your rate will adjust to the fixed rate plus a variable rate based on inflation. If inflation picks up, you’ll get a hiked rate earlier than versus buying in October.

If haven’t bought your limit for 2017 yet, I don’t feel strongly one way or the other. If you like the idea of locking in a rate of return for the next 12 months that is a bit better than current CD rates, buy in October. If you think inflation will go up soon, buy in November. Your November fixed rate might be also be bumped up a tiny bit to 0.1%.

Existing I-Bonds and Unique Features
If you have an existing I-Bond, the rates reset every 6 months depending on your purchase month. Your bond rate = your specific fixed rate + variable rate (minimum floor of 0%). Due to their annual purchase limits, you should still consider their unique advantages before redeeming them. These include ongoing tax deferral, exemption from state income taxes, and being a hedge against inflation (and even a bit of a hedge against deflation).

Over the years, I have accumulated a portfolio of I-Bonds with fixed rates varying from 0% to over 1%, and I consider it part of my inflation-linked bond allocation inside my long-term investment portfolio.

Annual Purchase Limits
The annual purchase limit is now $10,000 in online I-bonds per Social Security Number. For a couple, that’s $20,000 per year. Buy online at TreasuryDirect.gov, after making sure you’re okay with their security protocols and user-friendliness. You can also buy an additional $5,000 in paper bonds using your tax refund (see IRS Form 8888). If you have children, you may be able to buy additional savings bonds by using a minor’s Social Security Number.

For more background, see the rest of my posts on savings bonds.

[Image: 1946 Savings Bond poster from US Treasury – source]

Filed Under: Banking, Investing, Savings Bonds //
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