As you may know, i bonds yield = fixed yield + inflation. Currently the 3.11% = 1.2% + 1.9%.I purchased I-Bonds in April of 2022. Maturity 5 years after purchase would be April of 2027.
Current rates are 3.11%....Seems like a no brainer to sell and invest into my AA.
I have Emergency funds in a HYSA.
Anything Im not thinking about?
now arguably the 1.9% is artificially low due to random fluctuations. If you look at 5 year Break-even inflation (BEI) = 5 year nominal - 5 year tips it is 2.34% (=4.05% - 1.71%) which is a decent amount higher. that's a reasonable estimate of what average inflation is likely to be over the next 5 years.
So a reasonable guess for Ibonds annual return over next 5 years is 1.2%+2.34% = 3.54%. that compares to the 5 year treasury at 4.05%. Still lower of course but not by as much.
Some other factors:
1) I-bonds create more tax-deferred space in your portfolio if you care about that. i.e. standard advice is to hold bonds in tax-deferred.
2) state taxes. i bonds have an advantage here. they are tax-deferred but when you cash them they are not state taxable. If you hold bonds in tax-deferred then you may pay state taxes when you withdraw (eventually) from your tax-deferred accounts.
3) put option- if interest rates spike, the 5 year treasury will lose money. i bonds will not.
cheers,
grok
Statistics: Posted by grok87 — Sun Dec 01, 2024 4:53 am — Replies 6 — Views 824