Author Topic: I Savings Bonds - Existing Portfilio Requesting Comments/Advise  (Read 7545 times)

SeattleSun

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It appears to me there are a lot of smart fixed income guys here.  I would appreciate some comments/opinions on my existing portfolio of I-Savings Bonds. 

I Savings Bonds are a US Treasury product offered to individuals to hedge for inflation IMO.  Interest on an I Bond is a combination of two rates: 1) A fixed rate of return which based on the date of purchase and remains the same throughout the 30 year life of the I Savings Bond and,  2)  A variable inflation rate which is calculate twice a year, based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U) for all items, including food and energy.

Here is a more detailed description for those interested:   http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

These 30 year bonds were bought in 2001, 2003 and 2005 and carry a fixed rate component or 3.00%, 1.10% and 1.00% the in the last decade the six month computed variable interest rate component has ranged from -2.78% (2009) and +2.85%.  But my received interest rate can never fall below zero.

Here is the rate history for those interested:  http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm

Currently based on the May 1st 2013 update these government bonds Yield:  5.58% (2001),  3.84% (2003) and  3.74% (2005).   Since it would be laborious to calculate the current value of these $10,000 bonds here it is: $18,928 (2001), $14,532 (2003) and $13,204 (2005).

There is no secondary market for these bonds the only choice is to continue to hold or sell back to Uncle Sam.

When me and my wife bought them there was a annual limit of $30,000 per SSN and we maxed out each of the subject years.  Now there is an annual limit of (edit) $10,000 per SSN.  That signals to me that Uncle Sam is sorry he sold me these I-Bonds.  I do get some pleasure from holding the Treasury's feet to the fire but economically wonder if these are a HOLD or SELL.  I have taxable alternatives for fixed income investing of between 7% and 10% now.   I can make construction loans to a local business at 7% or invest in P2P for an estimated 10%.  Both these opportunities are ~3 years in duration.  Neither are "risk free" like Treasury Debt (lol).

I know it will be hard for the "professionals" here to comment not knowing my total financial situation.  Here are a few tidbits:  I am 66 and retired with a pension and SS (thanks to all those still contributing to the SS Trust fund).  My 60 year old wife continues to work.  I can vary my annual income between $70k minimum and say $140k using non-mandatory IRA withdrawals.  If that still isn't enough data I would be happy to hear just general comments on this I-Bond portfolio. 

Again the options are HOLD or SELL as I would never buy I-Bonds now as the fixed rate is zero for the life of the 30 year bond.

TIA
« Last Edit: July 16, 2013, 09:55:20 AM by SeattleSun »

Dennis

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #1 on: July 16, 2013, 02:59:17 AM »
Hello:

I also have a similar situation with I bonds.  I often think I could do so much better by investing the money I have in I bonds into P2P.  My situation is this:  I currently have 3 P2P accounts, my returns on those accounts after 23 months are 13.55%, 14.84%, and 17.66%.  Most of my I bonds were purchased in 2005 and 2006, so the interest for them is currently in the 2.19% - 2.97% range.  It would seem a no brainer to move that money into P2P, but for me, that money is staying right where it is. 

For me I bonds are my core investment, meaning that they are the last defense of all my investments if all else goes wrong.  You know as well me how safe those bonds are - as safe as anything can be.  My other investments include stocks, bonds, savings, IRA, 401k, cash, currencies, and P2P.  I personally think P2P is a pretty safe investment, but it's still far greater risk than a treasury bond.  I won't risk my core holding for the higher risk that P2P still is.  If you're comfortable investing in higher risk notes, in other words, if you lost money on this investment and that's okay with you, then I say go for it, you'll probably do pretty good.

Other tidbits:  I'm approaching 50K in investment in P2P and will probably hold there for a while, only reinvesting profit.  I want to see how P2P plays out going forward as there still is much uncertainty to its future.  With that said, in the 23 months I've been investing here, from what I've seen so far it looks like this will eventually become a pretty stable and reliable form of investment, but again, it's still early.  One more thing, I'm considerably younger than you, so if I lost my 50k in P2P due to unforeseen events, it wouldn't hurt me much.  Your situation sounds different and may require greater scrutiny.

Anyway, that's my 2 cents worth..........

Good luck! 

     
« Last Edit: July 16, 2013, 03:50:09 AM by Dennis »

AnilG

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #2 on: July 16, 2013, 03:42:18 AM »
We are serious I-series Bond purchaser too. Every year we max out the $10,000 per SSN limit. We still buy them though fixed rate is 0%. We like the tax-free growth and the risk-free nature of this investment plus it will keep up with the inflation.

@SeattleSun, you are getting pretty good yield on your I-series bond. These are the safest and best investment. I wouldn't advise you to sell them unless you need cash for living right now. Comparing I-series bonds to any other investment is comparing apples-to-oranges. No other investment will offer the return you are getting at the risk you are taking with I-series bond. I will take 3+% risk-free inflation-adjusted return any day.
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rawraw

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #3 on: July 16, 2013, 06:32:00 AM »
It's great for diversification and the tax benefit.  Calculating a tax equivalency yield may help you sleep better at night?

Randawl

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #4 on: July 16, 2013, 06:47:15 AM »
@SeattleSun

If I were you, I would hold your current position.  Until/if you find yourself in a situation where you need to generate additional emergency cash flow, I would not sell those bonds.  In fact, I would make it one of the last things to liquidate in such a case.

New Jersey Guy

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #5 on: July 16, 2013, 07:26:55 AM »
I gotta agree with the other comments on this board.

At 54, I'm still aggressive with most of my investments.  However, not as aggressive as I was at 44.  As I push closer to 65 I'll slowly move my money into lower yield, fixed income type securities.  At retirement, I think security has to be the highest priority.

OMG!  I just can't picture myself with a portfolio of "A" and "B" notes content making 6% to 7%.
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SeattleSun

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #6 on: July 16, 2013, 09:54:20 AM »
We are serious I-series Bond purchaser too. Every year we max out the $10,000 per SSN limit. We still buy them though fixed rate is 0%. We like the tax-free growth and the risk-free nature of this investment plus it will keep up with the inflation.

"tax-free growth" - I think you might mean "tax-deferred growth" as the Federal Taxes due can be paid when the bonds are cashed.

"Interest earnings may be excluded from Federal income tax when used to finance education", this could be relative if maybe there are grand children in the picture.  I live in Washington State and there is no state income tax dispite the Gates' best effort to have one passed. 

Ah yes it looks like the Treasury has raised the max purchase to a purchase of $10,000 per SSN per year.

http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
« Last Edit: July 16, 2013, 11:37:49 AM by SeattleSun »

Rob L

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #7 on: July 16, 2013, 11:31:36 AM »
I've found this blog informative. Mostly about TIPS, but I-Bonds are discussed (their recommendation, buy max every year).
http://tipswatch.com/

AnilG

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #8 on: July 16, 2013, 11:35:21 AM »
Yes, I meant tax-deferred (I shouldn't reply late in the night). Actually, total limit is $15K if you count up to $5k of tax return refunds. We live in WA (Seattle) too and I am glad gates is failing with state income tax. Once politicians get hold of new tax, you can bet they will keep raising that tax to collect more money.

We are serious I-series Bond purchaser too. Every year we max out the $10,000 per SSN limit. We still buy them though fixed rate is 0%. We like the tax-free growth and the risk-free nature of this investment plus it will keep up with the inflation.

"tax-free growth" - I think you might mean "tax-differed growth" as the Federal Taxes due can be paid when the bonds are cashed.

"Interest earnings may be excluded from Federal income tax when used to finance education", this could be relative if maybe there are grand children in the picture.  I live in Washington State and there is no state income tax dispite the Gates' best effort to have one passed. 

Ah yes it looks like the Treasury has raised the max purchase to a purchase of $10,000 per SSN per year.

http://www.treasurydirect.gov/indiv/products/prod_ibonds_glance.htm
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SeattleSun

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #9 on: July 16, 2013, 02:18:42 PM »
I currently have 3 P2P accounts, my returns on those accounts after 23 months are 13.55%, 14.84%, and 17.66%. Other tidbits:  I'm approaching 50K in investment in P2P and will probably hold there for a while, only reinvesting profit.  I want to see how P2P plays out going forward as there still is much uncertainty to its future.  With that said, in the 23 months I've been investing here, from what I've seen so far it looks like this will eventually become a pretty stable and reliable form of investment, but again, it's still early. 

Dennis,

Those are impressive returns, what kind of notes are you buying?

I have taken the "Min Loss" approach on Prosper with a focus on A & B loans with some AA and Cs and after 9 months and 600 loans have yet to have a default (that should kill that record) and am hoping for a 10% return.  Its still too early to tell what the results are going to be.

As far as sitting back and waiting for things to develope based on my years of experience you may regrett doing that as the market tends to close these above market returns IMO.

Here is a quote from the Purpose paragraph of my LLC Operating Agreement,  "Emphasis is placed on strategic investments that take advantage of market anomalies to obtain maximum economic benefit for the members."

The reason I am here is because I believe the current P2P returns are a "market anomality".   

Does anyone believe I am wrong about these returns as I could be underetimating the risk?  TIA

dontvote

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I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #10 on: July 16, 2013, 05:21:17 PM »
Tips and other inflation tracking securities are an essential component to a risk balanced portfolio.

I'm surprised that No one has pointed out that with the amount of money printed in this economy over the last few years the risk of inflation is not low. Rates are low and there isn't much inflation today but you want to hold these types of investments as that changes.
dontvote

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Dennis

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #11 on: July 17, 2013, 03:06:08 AM »

Dennis,

Those are impressive returns, what kind of notes are you buying?

I have taken the "Min Loss" approach on Prosper with a focus on A & B loans with some AA and Cs and after 9 months and 600 loans have yet to have a default (that should kill that record) and am hoping for a 10% return.  Its still too early to tell what the results are going to be.

As far as sitting back and waiting for things to develope based on my years of experience you may regrett doing that as the market tends to close these above market returns IMO.

Here is a quote from the Purpose paragraph of my LLC Operating Agreement,  "Emphasis is placed on strategic investments that take advantage of market anomalies to obtain maximum economic benefit for the members."

The reason I am here is because I believe the current P2P returns are a "market anomality".   

Does anyone believe I am wrong about these returns as I could be underetimating the risk?  TIA


You mention Prosper, so here's my breakdown (snapshot) of that account:

AA - 0 notes
A - 25 notes
B - 50 notes
C - 154 notes
D - 153 notes
E - 156 notes
HR - 78 notes

Summary:

- 616 notes in total held now
- 23 months of investing
- 42 charged-off to date
- never sold a single note
- 130 notes paid off early
- all combined I've purchased in my Prosper account a total of 788 notes in 23 months
- current Prosper (all notes) return = 14.84%

Some things that have surprised so far me with my Prosper experience:

- the number of charged-offs I've received so far (didn't expect that many)
- how many charged-offs you can have but still maintain a decent return
- how hard it is to find decent notes now (as opposed to a year ago)
- how many borrowers pay off early

My biggest "complaint" with Prosper would have to be the number of early payoffs.  Prosper used to solicit Borrowers to refinance into a lower interest rate after they made a few payments, as their credit score improved.  I don't know if they do that anymore, but it use to piss me off to have to keep finding new notes to replace those early payoffs (actually, it still does piss me off).  Prosper would generate more origination fees by doing that.  My second complaint now is the lack of available notes on the platform.  Unless you're lucky enough to have a schedule that allows you to invest at the two exact times a day that notes hit the platform (I'm not), you will have a very hard time finding notes (I do).   

I believe it is wise to take your time investing in P2P as to avoid making costly mistakes.  Of course that is true with most things in life.  But after almost two years of investing in P2P, while I have learned a lot, I'm still learning and I would caution anyone from taking on too much risk based on my results.

Anyway, again, just my 2 cents worth...............

 

Dennis

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Re: I Savings Bonds - Existing Portfilio Requesting Comments/Advise
« Reply #12 on: July 17, 2013, 03:17:20 AM »
SeattleSun, one more thing to add:

I had my first default with Prosper at the end of my 12th month investing there.  After that first one, they just kept coming and still do.  You're only in your 9th month, believe me you will get them, I don't care how conservative your notes are - it will happen.  I freaked on my first one, but others here on these boards calmed me down.  When you do get that first one, don't freak like I did, it's an unavoidable consequence of investing in people - some will let you down.  What I'm trying to emphasize is that you will get the defaults so I caution in getting too comfy in your investing skills just yet.  Let's see where you are in a year from now.

Best of luck..................   

« Last Edit: July 17, 2013, 05:00:13 AM by Dennis »