Investing is often complex and risky. There may be simpler options. This may be the case for US Government Series I savings bonds in the current inflationary environment. In the current environment, government support can mitigate most of the risk and pay interest of about 3% to 5%. The catch is that purchases are limited to $ 10,000 per person per year.
These savings bonds are currently paying interest reflecting the inflation rate (CPI-U rate). This is important because inflation has been very high at around 5% in recent months. As a result, these bonds are currently paying relatively high interest rates, especially on a risk-adjusted basis. They are backed by the US government and prices are fixed. In other words, downside risk is relatively limited when compared to equities.
However, there are some restrictions. First, if you hold it for less than 5 years, you will incur a 3 month interest redemption penalty. With that in mind, current inflationary surge investors may come out ahead of various other fixed income investments, and those other investments may be considered more risky. there is.
Second, you need to trade them through the Treasury Direct platform. This may not be as simple as a brokerage account. It also means you don’t have to deal with brokers or commission payments.
Third, you’ll be limited to $ 10,000 per person per year with your Social Security number, and cash tax refunds up to $ 5,000. The minimum purchase amount is $ 25.
These bonds are currently paying 3.54% for May-October 2021 issuance, which only reflects the delay in inflation from September 2020 to March 2021. , It is considerably suppressed compared to the current inflation rate.
In November, interest rates should be updated to reflect inflation from March to September 2021. This could be even more interesting. Of course, we still don’t know how it works, but based on inflation over the last few months and September data, it could be in the range of 3.5% to 5.5% (September). The CPI number must be reported on October 13th).
What makes these savings bonds potentially interesting is the relatively low risk. Yes, certain stocks and higher-risk bonds may offer a higher return outlook, but they can also lose money, and most people aren’t cheap at the current US stock valuation. I agree with you.
The results of these bonds are more predictable. You should see a reasonable return without taking a lot of risk. These savings bonds may be worth investigating if these bonds can now pay 3% and in the future 5% and the 10-year Treasury produces about 1.2% for comparison. ..
However, keep in mind that you will have to go through the Treasury Direct site to get them, and if you sell within 5 years, you will be penalized with a 3 month interest penalty for early withdrawal.If inflation turns out to be temporary, these can be interesting short-term investments, payments can decline with inflation, but if inflation prolongs, these savings bonds will be even more Offers attractive returns and probably has less potential risk