I decided to write this, this morning, because in this environment, if I'm able to encourage at least one person to buy government-backed bonds where they wouldn't have before, I'll feel like I've done some good.
If I'm like most of you, a lot of us have come of age in a very low-interest-rate low-inflation environment. Even for those of us who haven't, it's hard to remember what a high-interest rate / high inflation environment is like.
Combined with changes in how government bonds are issued, it's not surprising that there is little if any discussion of government bonds either here on /r/personalfinance or /r/investing (not to mention the YOLO culture of /r/wallstreetbets that has started to permeate everything, including /r/cryptocurrency).
Government bonds are not sexy. They come with names like Series I and Series EE that I still have to look up every time to remember what each does (and I'm not even going to get into marketable government bonds that individuals and institutions can buy and sell to each other, which are probably more safely invested in for most of us through low-cost ETFs). Even worse, they also mostly have to be bought through a wonky and non-user-friendly treasurydirect.gov website.
Still with the stock market and home prices at historical highs, and people gambling with money left and right as if there's no tomorrow, I think it's worth strongly considering what has historically been one of the safest places to park your money: U.S. government-backed individual savings bonds.
Again most of us are invested in marketable government-backed bonds through ETFs and mutual funds, but the government also gives any resident with a social security number the opportunity to buy up to $10,000 in Series EE and $10,000 in Series I bonds a year ($15,000 if you use your tax refund to get up to $5,000 in paper Series I Bonds).
Series EE bonds have a guaranteed rate of at least 3.5% if you're willing and able to hold them for 20 years. I personally think that's a pretty good deal for an investment with that low a risk, and I've been buying more of them as the stock market continues to climb. Still, if you don't think you'll be able to park your money away for that long, I can understand why folks would avoid it.
Series I bonds are a different story when you combine them with an emergency fund. One of the biggest worries about holding a lot of cash, most folks should know, is that you're generally losing out to inflation when you do so. Most folks accept that loss when it comes to their emergency fund because they want to be able to access it without the risk of losing it that would come with trying to beat inflation.
Series I Bonds are one of the best places to keep at least some of your emergency fund because, being indexed to inflation, they take a big part of that worry away. You will have to hold I Bonds for a bit before they're liquid (You can redeem them after a year losing only the last three months of interest and penalty free after 5 years) but you won't lose any of what you originally invested.
As long as you're beating the crap interest most savings account pay (1.3% at the highest range, where my Series I bonds are currently at ~2%) you're golden. The best part about it is you don't have to worry about banks changing their interest rates, or them nickle-and-diming you on other stuff. These bonds exist for individuals' benefits, no one else's.
If I may say, I think that's a big reason this isn't talked about a lot. No big institution profits when we buy individual government bonds, as opposed to a lot of the other savings or investment vehicles most of us use. The only people who profit from this are those who buy these bonds (that can be you!), with the government assuming all of the risk (there's a reason these bonds are capped at $10,000/year).
Are I-Bonds the silver bullet emergency fund solution for everyone and everything? No. For example, in a low inflation environment, it's possible to beat Series I bonds in a regular savings account for at least a little while. I've personally experimented with Betterment's emergency fund feature (a mix of 60% bond / 40% stock ETFs that's a bit too risky for an emergency fund IMO), and I've also got some of mine in a rewards checking account.
Still, individual bonds are a government benefit not enough of us with a social security number take advantage of, in my opinion. If the government is willing to pay us money and assume all of the risk, why not take advantage? Seriously, go to treasurydirect.gov, navigate that monstrosity of a website, and try it. You can start in increments of as little as $25
The only way you conceivably lose is if the U.S. government fails. While I know that's more and more of a worry for a lot of us in these times and under this administration, be honest with yourself. If the entire U.S. government goes down the last thing you're going to be worrying about is the $25 you experimented with to buy I-Bonds.
Submitted October 26, 2017 at 06:54AM by kyledeb http://ift.tt/2gJCBp0
