I series bonds?

Dave Taylor

Rex kwan Do
Currently I am still mostly cash in all of my accounts which has worked out so far. I am looking into I bonds for my kids and the wife and I. This started as a result of seeing last month's statements for the custodial accounts my mother started for our kids. They started with $10k each 6 years ago, went upwards of $16k and now are breakeven/slightly negative. This Is what upsets me about financial advisors. They don't know how to do anything besides dump money into funds. Nothing about preserving capital, DCA or anything.

So the real question is...inflation...will it stay high? Is now the time to invest in I bonds or should we wait until they squash this round of inflation in another year or three to go that route? Currently they are earning 6.89% until April. Is there a chance these end up earning nothing if the fed really squashes inflation to zero? TIA
 

phillychris498

Well-Known Member
There’s no shot the fed brings inflation to 0 with this round of tightening. I’d expect inflation at around 5.5%-6% for headline CPI for the end of 2022, and then 2.5%-3% for the end of 2023. I think the I-bonds are indexed once every 6 months to inflation, which means that you would probably yield growth upwards of 10-15% by the end of 2023.

The financial advisors probably heard that the accounts were for kids and put the $10,000 only in growth stocks, which of course have been destroyed this year... a lot of the headliner names in high growth are down more than 50% YTD.
 

Patrick

Overthinking the draft from the basement already
Staff member
Yup some idiot putting it in a growth fund, and dragging the earnings with their commission.

SP500 would be around $16k now with 10 invested 6 years ago.....
assuming no tax drag - which is cool cause the reinvest raises the basis with untaxed money.
 

onetracker

Well-Known Member
There’s no shot the fed brings inflation to 0 with this round of tightening. I’d expect inflation at around 5.5%-6% for headline CPI for the end of 2022, and then 2.5%-3% for the end of 2023. I think the I-bonds are indexed once every 6 months to inflation, which means that you would probably yield growth upwards of 10-15% by the end of 2023.

The financial advisors probably heard that the accounts were for kids and put the $10,000 only in growth stocks, which of course have been destroyed this year... a lot of the headliner names in high growth are down more than 50% YTD.
This is correct. Ibonds are limited to $10K per person and are currently around 6.8% down from 9%+ last period. Good little investment.
 

Dave Taylor

Rex kwan Do
Yup some idiot putting it in a growth fund, and dragging the earnings with their commission.

SP500 would be around $16k now with 10 invested 6 years ago.....
assuming no tax drag - which is cool cause the reinvest raises the basis with untaxed money.
I am not ready to long this market just yet. Looking at the dollar chart someone knows something about what's going tube said on Wednesday and I have a feeling a big move is coming and it may be up. I 100% don't feel like the pain is over with in growth stocks yet. It's going to be a long time for that beatdown to recover and gain confidence.
On the Bonds I was thinking of socking $10k away in each family member's name.That could work right? How would the kids be taxed if we withdraw early? It sounds like the Bonds are also compounding with almost a DRIP type reinvestment.
 

Patrick

Overthinking the draft from the basement already
Staff member
I am not ready to long this market just yet. Looking at the dollar chart someone knows something about what's going tube said on Wednesday and I have a feeling a big move is coming and it may be up. I 100% don't feel like the pain is over with in growth stocks yet. It's going to be a long time for that beatdown to recover and gain confidence.
On the Bonds I was thinking of socking $10k away in each family member's name.That could work right? How would the kids be taxed if we withdraw early? It sounds like the Bonds are also compounding with almost a DRIP type reinvestment.

problem is they will mature when the kids have taxable income?
Or will break the kiddie tax rate which is bad.
(well, unless you pay $1MM in taxes, then it doesn't matter)

This would be rather than taking a dividend stream while it is not taxable.
(check kid's tax exemption - it is tiered - 0,kiddie tax, parents rate, check:it may be custodian rate)

Large cap corp paper & div fund. VWEAX (or whatever the equiv is at the 10k level)

EDIT: I-bond - you can claim the interest as it accrues! Keeping it at the 0 rate.
 

Dave Taylor

Rex kwan Do
problem is they will mature when the kids have taxable income?
Or will break the kiddie tax rate which is bad.
(well, unless you pay $1MM in taxes, then it doesn't matter)

This would be rather than taking a dividend stream while it is not taxable.
(check kid's tax exemption - it is tiered - 0,kiddie tax, parents rate, check:it may be custodian rate)

Large cap corp paper & div fund. VWEAX (or whatever the equiv is at the 10k level)

EDIT: I-bond - you can claim the interest as it accrues! Keeping it at the 0 rate.
I believe you automatically claim it sit accrues.
 

rick81721

Lothar
There’s no shot the fed brings inflation to 0 with this round of tightening. I’d expect inflation at around 5.5%-6% for headline CPI for the end of 2022, and then 2.5%-3% for the end of 2023. I think the I-bonds are indexed once every 6 months to inflation, which means that you would probably yield growth upwards of 10-15% by the end of 2023.

The financial advisors probably heard that the accounts were for kids and put the $10,000 only in growth stocks, which of course have been destroyed this year... a lot of the headliner names in high growth are down more than 50% YTD.

This - inflation will be back to 2- 3% by end of next year, and that's where your I bond return will be for the long run. Better off putting money for kids in the market.
 

Santapez

Well-Known Member
Team MTBNJ Halter's
Do they still do that thing where they force you to "type" in your password with the virtual keyboard on the screen? It's amazing how that barrier to entry stopped me.

Dave, have you looked into these crypto exchanges that pay interest? I haven't looked into it but there's been a ton of headlines lately about them.
 

Dave Taylor

Rex kwan Do
This - inflation will be back to 2- 3% by end of next year, and that's where your I bond return will be for the long run. Better off putting money for kids in the market.
If you think the market will be higher this works.
Do they still do that thing where they force you to "type" in your password with the virtual keyboard on the screen? It's amazing how that barrier to entry stopped me.

Dave, have you looked into these crypto exchanges that pay interest? I haven't looked into it but there's been a ton of headlines lately about them.
I have not. I was actually looking at buying a small amount of HEX(supposed to work like a CD) in my Coinbase wallet but truthfully I think crypto is going to crash further. Where do we safely store any crypto that we buy? Binance may collapse next...or coinable. Do we just keep it simple with the the three big ones and buy through Venmo or PayPal?
 

Dave Taylor

Rex kwan Do
This - inflation will be back to 2- 3% by end of next year, and that's where your I bond return will be for the long run. Better off putting money for kids in the market.
If you are certain on that then your theory is correct. I feel we are at risk of stagflation or deflation in the next 10 years. There will be a time to invest in stocks but I don't think it's just yet. Yesterday they said they may need to do 100bps in December.
 

phillychris498

Well-Known Member
If you are certain on that then your theory is correct. I feel we are at risk of stagflation or deflation in the next 10 years. There will be a time to invest in stocks but I don't think it's just yet. Yesterday they said they may need to do 100bps in December.
I would gamble all of my meager savings on the fed not raising by 100 bps in December. 50 bps is what is priced in according to CME Fed Futures right now, 75 bps will shock the market into an end-of-year sell off, and 100 bps would send the S&P to new lows at 2:05 PM the day of their policy announcement in December.

Overall, I-Bonds seem like a nice spot to park a portion of your portfolio during this cycle. There is a risk of longer-term wage-based inflation persisting given how structural labor shortages are. The working age population in the US is contracting right now for the first time in decades, and there’s still nearly 2 jobs open for every 1 unemployed person looking for work. That can only drive inflation higher, and would keep the fed on this longer run cycle of rates being above the level of the past 12-14 years, which would make the S&P trade sideways for a while.
 

w_b

Well-Known Member
We did max out the $10k/yr for me, my bride, and my 2 kids, last month before the reset; so will enjoy the 9.6% for 6 months, then another 6 months at 6.something %. Then we shall see.
 

Dave Taylor

Rex kwan Do
We did max out the $10k/yr for me, my bride, and my 2 kids, last month before the reset; so will enjoy the 9.6% for 6 months, then another 6 months at 6.something %. Then we shall see.
So, if you cash the kid's accounts out in a year or two how are those taxes paid?
 

Patrick

Overthinking the draft from the basement already
Staff member
So, if you cash the kid's accounts out in a year or two how are those taxes paid?

see above where it is claimed/paid yearly - they'll make less than $1,100 in earnings - 0 tax.
assuming they don't have other unearned income.

now - how does the resale price of i-bonds vary in a falling market?
can you lose on resale, or just the sales/discount of the current rate on your principal?
 

Fire Lord Jim

Well-Known Member
Everyone in my house did I bonds. I do the full 15k each year. We have a choice of paying tax on the interest every year. Or at maturity or redemption.

We can do $10k of electronic I bonds, and another $5k in paper I bonds with a tax refund. I will put an extra $5k in my Jan 15 estimated tax form 1040ES. I will not file my taxes early. The next I bond interest rate resets May 1, based on CPI-U on April 1. I will see that CPI figure before April 15, determine the I bond rate until November, and with that decide whether to take my tax refund in cash or paper I bonds.
 

w_b

Well-Known Member
see above where it is claimed/paid yearly - they'll make less than $1,100 in earnings - 0 tax.
assuming they don't have other unearned income.

now - how does the resale price of i-bonds vary in a falling market?
can you lose on resale, or just the sales/discount of the current rate on your principal?
There is no resale, only redemption at face value plus interest.
 
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