As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there's a $10k annual deposit limit.
Series I bonds with issue dates prior to February 2003 became eligible for redemption six months from the issue date. Bonds with issue dates of February 2003 and later are eligible for redemption one year from the issue date.
However, if a bond is cashed within the first five years after its issue date, interest earned during the three months prior to cashing will be forfeited. Once a Series I bond is five years old, there is no interest penalty for redemption.
Another problem, you will owe federal tax on the I bond interest when you cash it in.
In general interest on treasury bonds is not taxable at the state level. I am not sure about local taxes, which have all sorts of one off rules. But the thing most miss about the I bonds is you receive no interest until maturity/cashing it in. So no compound interest.
Hope that helps!
That's incorrect. I bonds compound semi-annually.
https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds...
Please see this for other questions.
>3). Tax Deferred - I-bonds do not throw off interest. You only owe tax on the internally compounding interest once the bonds are cashed in, which means you control when you pay tax. Always a good thing!
https://www.reddit.com/r/personalfinance/comments/qprqpy/ibo...
It’s $10K per tax identifier, so if you’re married you just doubled it. If you have kids, each of them can buy $10K as well (though be sure to understand that you’re permanently transferring the assets to them, you can’t take it back it’s effectively an early inheritance).
You can also buy $10K as a corporation, LLC, or anything else with a tax identifier.
That said, stocks don’t tend to perform well either because of expectations over interest rates increasing to combat inflation and an ensuing recession.
Note that a key factor here isn't inflation, per se, but the rate of change in inflation. From an Econ 101 perspective 2% inflation is no different than 20% inflation if things are otherwise steady-state. Stocks are the better bet because in principal they should respond more quickly to changes in the inflation rate. If inflation is steady, bonds in principal are the simpler, cheaper instrument.
I would have thought BND would have fallen a lot harder considering how much higher new bonds are paying but maybe the market is pretty good at pricing bonds based on their associated risk per length of bond time with inflation?
IDK, what do you think?
You would also expect bonds to perform poorly as their prices need to decline to make their yields competitive with those of new bonds issued at higher interest rates. Term loans should outperform since their interest rates are variable, making them safer in a regime of raising/fluctuating interest rates.
Conversely, sometimes US treasuries will outperform if investors are fleeing to a safe haven against potential recision risks. There's always another variable.