Are iBonds for you?
If you've pumped gas, bought coffee, or been generally cognizant the last few months, you know that inflation is running high. While that's bad for your road trip and latte, it's good for iBonds, which are linked to the inflation rate and set to yield (or pay you) over 9.5% starting in May. That means, if you buy $10,000 of ibonds on May 1, you could earn almost $1,000 in interest by holding the bond for a full year.
In broad strokes, an iBond is a type of bond issued by the government (and therefore relatively safe) that earns a combination of fixed interest and, here's the important part, INFLATION rate return.
What's the catch?
First, each individual can only buy up to $10,000 of iBonds per year for themselves.
Second, the rates reset every 6 months, so if inflation disappears, so too might your high yield. As the fixed rate is currently at zero, that would leave you with a 0% yielding bond which is pretty much the same as just holding cash.
You have to hold them for 12 months minimum.
If you cash out between the end of year one and the end of year five, you lose your prior three months interest as a penalty.
Finally, you have to buy the bonds directly through www.treasurydirect.gov. Unfortunately, there is no way for me to purchase them for you.
How do iBonds fit with our investment strategy for you?
We've talked about keeping sufficient cash out of the stock market so you would be prepared for expected volatility. With the markets seesawing up and down, we want to continue maintaining a higher cash balance than usual. Unfortunately, with inflation so high, your cash is losing value every day it sits under your sofa cushion. Ibonds offer a way to preserve your cash reserve without losing its real (that is, inflation adjusted) value.
You can buy ibonds for other people up to $10,000/person/year. If you are considering making a gift to a family member this year, consider making it through the purchase of ibonds.
Final thoughts?
As your trusted advisor, my goal, as you know, is to take the burden of portfolio management off of your shoulders so you can worry about the "fun" stuff, which I have been told, for most people does not include rebalancing portfolios or monitoring interest rates. Unfortunately, ibonds are an investment that you'd have to make outside you're existing investment portfolios.
And I know the birds are chirping and the flowers are blooming, but I still encourage you to take the time to consider these bonds, as I think they are a wise investment option.
And while I cannot buy the bonds for you, I am eager to help if you decide they might be right for you. Please reach out if you'd like to discuss this strategy further.
Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment loss. As with any investment strategy, there is the possibility of profitability as well as loss.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.