Posted about these last night and got some great responses. I ended up buying. I like them so much that now the question is actually if I want to be buying more.
I'm holding about 40% of my entire portfolio in cash (checking account, savings account, money market fund) Why? I don't actually have that much money to my name. So necessarily cash will take up a larger percentage.
I'm also above and beyond the 6 month emergency fund. Why? Because I'm young and potentially have some big purchases in the next 1-5 years coming up: a car, major home repairs, master's degree, etc. The timeline on these things is indefinite but they are real possibilities. So that's why I'm holding so much cash, above and beyond the 6 month emergency sweet spot.
That said, I really don't like the look of cash right now. I like it's relative safety and liquidity, of course. But I don't like the prospect of inflation eating into it. So far we're below the Fed's target, but the Fed has expressed that they will let inflation run a bit hot to make up for an average that has been below 2% in the previous years. Also, there's the Biden stimulus. Experts are saying there will be inflation, but that it will only be transitory.
Best case scenario? The aforementioned transitory inflation and/or slightly above 2% from the Fed. Middle ground scenario? Things run a little hotter than expected. Worst case scenario? Things really run hot and the dollar takes a huge hit.
I'm not an economist (well actually my degree is in economics!), but I do know that I can't really make sense of these numbers or scenarios. Realistically I expect anything from the best case to the middle ground case.
Which brings me to the idea of dropping some of my long-term cash reserves and putting them in series I bonds, as a secondary, long-term emergency fund. For anyone who doesn't know, these bonds are adjusted semi-annually for inflation. So all of that money would be protected from inflation minus taxes. There's also a fixed rate that is paid but that rate is 0% at the moment since other bonds have negative real yields.
The only thing is I would have to wait 1 year before having access to the money. This shouldn't be a problem because I don't need any of that money in the next year... it would be a bit further out. There's also a small penalty for cashing in between 1-5 years, but it's only the last 3 months' interest.
Finally I should mention that there's a $10,000 yearly limit on series I bonds. In my case, that's no issue, because even if I really go deep with them I wouldn't be spending that much.
Other possibilities to counter inflation: crypto. I don't like the volatility. Precious metals. Bullion is not liquid enough and I already have a small percentage of mining stocks. Someone mentioned CDs which seemed like a decent option but series I bonds just seemed easier to me than setting up a new account with my bank, etc.
So, series I bonds as a long-term store of cash seem like a sensible solution to me but I wanted to throw it out there to see if I'm missing anything.
Submitted March 29, 2021 at 04:46AM by shortyafter https://ift.tt/3wiUgWC
