TIPS vs I Bonds--What's the Best Way to Hedge Against Inflation?

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  • Опубліковано 21 вер 2024
  • Sallie Mae 14-Month No-Penalty CD now at 2.50% (via SaveBetter): go.robberger.c...
    TIPS (Treasury Inflation Protected Securities) and I Bonds both protect investors against unexpected inflation. Both bonds are also issued by the U.S. Government and are exempt from state and local taxes. But that's about where the similarities end.
    There are key differences between TIPS and I Bonds that investors should know. We look at 8 key differences, along with the pros and cons of adding each to your portfolio.
    As a bonus, we look at how one of them can help you save for a child's education.
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КОМЕНТАРІ • 104

  • @Cxba222
    @Cxba222 2 роки тому +12

    Hi Rob! I’m watching this now in May of 2022 and can’t thank you enough for your fantastic explanation between these two options and helping me protect my assets!

  • @eversunnyguy
    @eversunnyguy 2 роки тому +3

    Great demonstration. I will purchase I-bond ...currently pays almost 10% (May 2022). Glad to know that it I-bond won't go negative.

  • @carefulconsumer8682
    @carefulconsumer8682 2 роки тому +42

    Thank you for the detailed explanation including the actual charts at T-Direct. I just looked up the recent inflation rate on an I-Bond online and effective Nov 1st, it is 7.12% for the next 6 months. Not bad! Savings rates are basically zero.

    • @rongendron8705
      @rongendron8705 2 роки тому +15

      I've had I bonds for almost 20 years & yes, its getting 7.12 %, but I also got 0% sometimes!

    • @DogRedful
      @DogRedful 2 роки тому +5

      The $20k per couple/per year limit isn’t an insurmountable problem, over the years my wife and I have accumulated a nice six figure holding.
      They’re great for a deep energy fund and acting a portion of your bond allocation to free up Roth/tIRA space for more stocks.

    • @gg80108
      @gg80108 2 роки тому +1

      @@rongendron8705 20 yrs ago the fixed rate was 3%, so you at least got that, like I get. I could not find any year where the variable was zero. Run the manifest at TD subtract the current adj rate and what is left is your fixed rate.

    • @1linkbelt
      @1linkbelt 2 роки тому +1

      @@rongendron8705 Me too! I guess in the long run it does pay off.

    • @bleacherz7503
      @bleacherz7503 2 роки тому

      Is there an option for the interest to compound in the ibond?

  • @patblack2291
    @patblack2291 3 роки тому +22

    I Bonds can be a good way for an individual or married couple to manage some cash in retirement if they build up the balance in I Bonds over the years (particularly prior to retirement.) Once you have some I Bonds that are held for 5+ years, you're earning inflation-adjusted interest and can draw them down whenever needed at no penalty. Right now you are earning almost 8 times more interest in an I Bond versus a "high yield" savings account. If you make quarterly estimated tax payments, I suppose you could overpay by $1250 each quarter per taxpayer and then convert the tax refund into I Bonds to purchase the additional $5K annually per person. If done each year for 5 years, you would have $75K in I bonds for an individual or $150K per couple, with a portion of those bonds eligible for sale at no penalty. The minimums are modest, so you don't have to buy the entire $10k if that is not in your budget. You have to plan ahead to accomplish this, based on calendar year. Don't wait for the last week of the year to do this, as it can take a few days to get your account set up and the I Bond purchased.

    • @dumbness-or-kindness
      @dumbness-or-kindness 2 роки тому

      Does the min 1 or 5 year hold rule apply to each individual deposit?

    • @patblack2291
      @patblack2291 2 роки тому +1

      @@dumbness-or-kindness As far as I can tell, yes. Each purchase is a new bond with its own issue date: the first day the month in which it was purchased.

    • @ronloftis9080
      @ronloftis9080 2 роки тому +3

      Exactly...I Bonds are a great way for a pre-retiree to build up their cash bucket going into retirement and by purchasing them every year heading into retirement you build a bond ladder cash bucket to draw on. Pat...it's nice to see someone else besides me pounding the table for I Bonds for pre-retirees....it's my 5 to 10 year plan to build my cash bucket heading into retirement in 5 or 6 years. I go as far to say for those age 59 1/2 or older to to IRA to I Bond conversions to de-risk your portfolio. You are basically doing a hybrid Roth/IRA conversion as you pay taxes like you would on the IRA withdraw and then you never pay taxes on the principal ever again, and the conversion is like an IRA in that the I Bond interest is tax deferred until redemption.

  • @AOqueso
    @AOqueso 2 роки тому +3

    I know very little about finances, but I've been looking for a way to keep a "savings account/emergency fund" that will hedge against this crazy inflation. The value of the cash under my mattress or the money sitting in my checking account is wasting away. I Bonds seem to be the a great answer for me. Thanks for the video.

  • @alleneverhart4141
    @alleneverhart4141 2 роки тому +6

    Tax deferment on I Bonds is huge! This makes I Bonds effectively an IRA - you get tax-free compounding. I am committing to buying 10K worth of I Bonds per year and I am looking into overpaying my taxes so I get the extra 5K worth of I Bonds.

    • @JosephDickson
      @JosephDickson 2 роки тому +3

      Keep in mind you will be taxed on the compound gains when they're eventually sold. A Roth IRA won't be taxed at all.

    • @Simonjose7258
      @Simonjose7258 Рік тому

      But then you pay your Marginal Tax rate on all deferred taxes. You can earn up to $52k/ year in Qualified dividends or from Long-term Capital gains in a Taxable account and only ever pay 15 amd 20% at much higher amounts.

  • @k.6160
    @k.6160 2 роки тому +3

    Thanks for the video! I bonds are unknown to many, but good option at 7.12% right now, with inflation on the rise.

  • @danieldavidson1506
    @danieldavidson1506 2 роки тому +9

    Thank you Rob. As always a well thought out and presented bit of information. I think I'm going to purchase I-bonds this year and then consider purchasing each year moving forward.

  • @vemartin
    @vemartin 2 роки тому +6

    My entire Emergency Fund is invested in I-Bonds. Since they are tied to a checking account, there is little issue with liquidating them.

    • @wilma6235
      @wilma6235 2 роки тому +1

      Does the interest post to your checking account every 6 months?

    • @1linkbelt
      @1linkbelt 2 роки тому +2

      Exactly!

    • @1linkbelt
      @1linkbelt 2 роки тому +2

      @@wilma6235 No. You get that info. directly from the TD website, (your account)

    • @wannamontana4130
      @wannamontana4130 Рік тому

      What does that mean? .... "tied to a checking account?" I thought the I-bonds were held at the government at Treasury direct. Confused

    • @geoffgordon9569
      @geoffgordon9569 Рік тому

      @@wannamontana4130 You have to purchase I Bonds from a checking account online. Thus the funds return to the checking account when liquidated.

  • @Winston0Boogie
    @Winston0Boogie 8 місяців тому

    Thanks, Rob. Great video. I invested very little into I-bonds. It's not really for me. I can see why people buy them, though. There are some benefits. This helped me understand TIPS as I didn't really understand how they worked. I'm a nurse and I picking a lot of overtime so that I can invest as much as possible into my portfolio. Learning about all these strategies is so interesting. Thanks again.

  • @alan30189
    @alan30189 Рік тому

    I agree, the possibility of a negative rate on a TIP makes them a no-go.

  • @simul8guy75
    @simul8guy75 2 роки тому +5

    These I series Savings Bonds would be a great investment but you're limited to $10K per year.

  • @kurtmaxberry7025
    @kurtmaxberry7025 Рік тому

    I trust everyone is hedged. I cap out a 403b 457 and a 401k and both IRA ROths, and give all my kids and myself 10k a year Ibonds and who cares. i just want to make sure.

  • @snowlion777
    @snowlion777 Рік тому

    Great explanation Rob! Plain and clear as usual. Now I seem to understand the specifics

  • @HankColter
    @HankColter 8 місяців тому

    Can you comment on the upcoming 10 year TIPS auction? What is the expected rate and how does it compare versus buying an I bond?

  • @hb2998
    @hb2998 2 роки тому +2

    THEY SHOULD TEACH THIS STUFF IN HIGH SCHOOL!
    sorry for all caps.

    • @Learningonyourown
      @Learningonyourown 7 місяців тому

      So true! I am actually a high school senior who is pissed off about this!

  • @JoeC5050
    @JoeC5050 3 роки тому +4

    Great info.. thanks.. Subscribed.
    Can you do an video on Indexed annuities?.. Are they good?..

  • @GHC3
    @GHC3 2 роки тому +2

    It's wild how much things have changed since the video was posted. Now the ai bond 7.1 going to go higher in May, due inflation hitting 8.5% currently.

    • @ronloftis9080
      @ronloftis9080 2 роки тому +1

      Buy now before May 1st. Get the 7.1 and the 9.6 rates for a blended rate for 1 year at around 8.50%.

    • @GHC3
      @GHC3 2 роки тому

      @@ronloftis9080 I am waiting for the hardback my usatreasury account to be cleared then I can start buying them. I had to mail in a notarized form to prove my identity.

  • @Laborkei
    @Laborkei 3 роки тому +3

    My comments on Stocks... I buy on the Dip... and typically hold for a very long time. I buy more Stocks with the Dividend's, so I am constantly "Compounding"...

  • @boomerrangerron
    @boomerrangerron 2 роки тому +1

    I understand that the new rates for I Bonds are at 7.1%! Great video and tips!

    • @ronloftis9080
      @ronloftis9080 2 роки тому

      the current rate is 7.12% for purchases through April 30th. The new rate for purchases in May should be 9.6% or so. Buy now...get the 7.12% for 6 months, and then in Oct you will get the 9.60% rate for the following six months. It's a no brainer investment.

    • @boomerrangerron
      @boomerrangerron 2 роки тому

      @@ronloftis9080 Thanks Ron!

  • @freelyroaming
    @freelyroaming 2 роки тому +1

    I suspect you maxed out your I bond limits for both of you this year and will again got next year given the huge increase in CPI. Thanks for the video.

  • @Roger-ny9xr
    @Roger-ny9xr 2 роки тому

    From what I understand, the 3 month penalty could actually be for an amount of $0 if the current 6 month rate of the I-bond is 0.0% at the time the bond is redeemed.

  • @alleneverhart4141
    @alleneverhart4141 2 роки тому +3

    Update: May 2022 I Bonds yield 9.6% - huge!

  • @jeremywheeler8417
    @jeremywheeler8417 2 роки тому +3

    I've never bought I bonds. It looks like the only place you can buy them is through treasury direct.... Anyone ever have a problem getting their money back after their investment is matured?

  • @gtcapital
    @gtcapital 2 роки тому +1

    you called this one. great video. keep it up!

  • @mediacreationsusa
    @mediacreationsusa 3 роки тому +2

    So, how do you make any money with ibonds prior to their mature date? - the GOV will only give you what you paid for them correct? - I don't have 30 years to wait, but I could wait 5

    • @bar8665
      @bar8665 3 роки тому +5

      ? You would have made all the interest up until you pull it out. If you pull them out after 5 years there is no penalty. Within 5 years you're penalized 3 months of interest it earned. Within 1 year you cannot cash in the bond.

  • @beenthere9770
    @beenthere9770 3 роки тому +4

    What are the advantages of individual TIP bonds vs TIP ETFs?

    • @100perdido
      @100perdido 2 роки тому +2

      Excellent question. I am no expert but one big difference is that if you buy an individual TIPS and hold it to maturity you get at least the face value plus interest and inflation adjustments when it matures. The value would fluxuate with changes in interest rates if you sold it before maturity, being worth more if interest rates dropped and less if interest rates went up But if you hold it to maturity it does not matter .
      With a TIPS fund, they are going to hold their bonds until maturity, but the value of your shares will fluxuate with changes in interest rates just like any other bond fund, so the price may be up or down when you want to sell them.
      So it seems to be that buying individual bonds is the better choice if you aren't going to need the money before the bond matures.
      But do not listen to me.

    • @ronloftis9080
      @ronloftis9080 2 роки тому

      I Bonds - principal is guaranteed. TIPS - not so. I Bonds 1 year min holding period and then a 3 months last interest penalty if redeemed between year 1 and year 5. TIPs you would have to sell in the secondary market and you would be offered current market value.

  • @jivepatrol6833
    @jivepatrol6833 Рік тому

    Good video and explanation thank you!

  • @retirementmillions6533
    @retirementmillions6533 2 роки тому

    Thank you so much. Mr Rob

  • @baybay7898
    @baybay7898 3 роки тому +2

    thank u. Very useful information.

  • @stockspotlightpodcast
    @stockspotlightpodcast 2 роки тому +3

    I was interested in TIPS (SCHP) until I found out about the tax implications haha

  • @rickb2537
    @rickb2537 2 роки тому +2

    With respect to using you tax refund to buy I-Bonds, if you have enough of a refund due, does each spouse get to buy the additional $5,000 worth of I-Bonds or is it $5,000 per joint tax return?

  • @kevinsears6346
    @kevinsears6346 2 роки тому +1

    Excellent video! Thank you.

  • @Republic1usa
    @Republic1usa Рік тому

    Question? what about SCHP?

  • @edv1261
    @edv1261 3 роки тому +4

    Hello Rob. I enjoy your videos, very informative and believe it or not, I’m actually learning from them. So question for you, I invested some money on a fidelity tips- Fipdx instead of vtip from vanguard. The reason was because vanguard yield is negative -2.41. Fidelity is +7.11 which seems hard to believe. Any thoughts on it will greatly appreciated. Thanks

    • @rob_berger
      @rob_berger  3 роки тому +6

      What's the ticker of the Fidelity fund? I can tell you that if it's a TIPS fund, there's no way its yield is 7%. It may have had a 7% gain over a period of time when rates fell, however.

    • @edv1261
      @edv1261 3 роки тому

      @@rob_berger fipdx is the ticker

    • @edv1261
      @edv1261 3 роки тому

      Fidelity® Inflation-Protected Bond Index Fund

    • @edv1261
      @edv1261 3 роки тому

      Fipdx Fidelity® Inflation-Protected Bond Index Fund

    • @rob_berger
      @rob_berger  3 роки тому +6

      According to Morningstar its yield over the past 12 months is 0.06%--www.morningstar.com/funds/xnas/fipdx/quote

  • @michaelvadney5803
    @michaelvadney5803 2 роки тому +1

    Thanks, excellent video

  • @marcw.5492
    @marcw.5492 Рік тому

    great stuff... bonds are a new thing for me (lots of us now ) Is the iBond rate an APY ? its called "Interest Rate" on the site but it compounds each 6 months...meaning its reinvested I assume, so the APY is Higher than 6.89 % . What say you ?
    Regards

  • @donaldbartel9512
    @donaldbartel9512 3 роки тому +5

    Thank you Rob for your informative video on I-Bonds and how they work. I would like to invest in them but have one question regarding the beneficiary status of these bonds. You mention that the I-Bond must be held for a minimum of 1 year before it is eligible for redemption. Does this requirement apply to the beneficiary of the I-Bond?

    • @anngraff240
      @anngraff240 2 роки тому +5

      The one year applied to the bond, holder makes no difference. If the beneficiary is spouse, simplest thing is to list as co-owner, like you would the house. If passed on in will, then yes it applies to beneficiary too

  • @Pengkui
    @Pengkui 2 роки тому +5

    For I-bonds, if both the fixed rate and the inflation rate go negative, will the composite rate be floored at zero?

    • @adeshshetty2830
      @adeshshetty2830 2 роки тому +4

      Afaik, yes

    • @michaelfriedman2221
      @michaelfriedman2221 2 роки тому +3

      @@adeshshetty2830 yes they are guaranteed to never go negative on a total return basis

  • @slmunney7760
    @slmunney7760 2 роки тому

    Great video. Very informative.

  • @frodobaggins1505
    @frodobaggins1505 2 роки тому +1

    Rob, mirror or upload your vids to Rumble. Extend your reach, maybe make some more cash? Be great to have access to your channel there too.

  • @jonandrews3528
    @jonandrews3528 2 роки тому +1

    Hey Rob. Presently the I bond is paying 7.12. Many think it will go to 9 something. Just reviewed your video on the subject. Any updates?

    • @briangregus5225
      @briangregus5225 2 роки тому +1

      Jon, I just stumbled into Berger via search on I-Bond vs TIPS (dunno how often he answers comments on old videos). I noticed he has a video on I-Bonds released on Apr 13, 2022. You may want check that one.

  • @eversunnyguy
    @eversunnyguy 2 роки тому

    How is the typical interest in I-bond when inflation is 2% (typically the case)

  • @sylviachen3743
    @sylviachen3743 2 роки тому

    Hi Regarding the 3 month interest penalty if I sell i bonds within 5 years, how is the 3 month penalty calculated, since rates change every 6 months? Is it based on average monthly interest over the duration of the holding period? Or last 3 months of interest before sale?

  • @urbanart7325
    @urbanart7325 3 роки тому

    What is the best choice/vehicle to hedge against market correction, down turn in equities? Or what a non correlated investment to equities?

    • @nikolakasherov1617
      @nikolakasherov1617 3 роки тому +5

      I recently read an interesting analysis on the 2020 crash (got the PDF from Morningstar - 2021 Diversification Landscape
      A look at how key asset classes performed in 2020, how correlations have changed, and the implications for portfolio building), which focused on the performance correlation between different vectors, asset classes, factors, sectors etc during the decline. The key lessons - simple strategies worked best like adding Cash, Treasuries and Gold (best diversifiers). Utilities were also an option with the least/only 0.6 correlation amongst equities. However all classical options such as commodities,
      corporate bonds, global bonds, high yield, REITs, and Treasury Inflation-Protected Securities have lost value as diversifiers (correlation to other assets crept up). Specifically, the past 20
      years have been marked by declining interest rates and benign inflation. In a period of equity market weakness precipitated by rising yields, Treasuries and other high-quality bonds may be less reliable diversifiers, particularly given how low their yields are in absolute terms. On another perspective from the defensive framework by the WisdomTree team, you can still preserve value by relying on equity defensive sectors such as Healthcare and Consumer Staples. WisdomTree also put strong emphasis on and according to their analysis vehicles such as Momentum and Quality ETFs are overperforming in decline. Last but not least, there is also the negative correlation between long term growth/return and stability/defense to be considered. Personally, I am currently most concerned what bonds to include, if any.

    • @rob_berger
      @rob_berger  3 роки тому +3

      www.morningstar.com/content/dam/marketing/shared/pdfs/Research/Diversification_Landscape_033021v2.pdf

    • @bar8665
      @bar8665 3 роки тому +1

      the best hedge is physical PM's. Physical silver went UP slightly during the time equities along with crypto was going to crash to zero just last year...

  • @LearnEnglishWithMatta
    @LearnEnglishWithMatta 2 роки тому +1

    Excellent video. Appreciate your work 💪🏽

  • @alleneverhart4141
    @alleneverhart4141 2 роки тому

    @Rob - can I use my I Bonds to pay for my grandchildren's education without taxation?

  • @leerichwagen8641
    @leerichwagen8641 Рік тому

    Can you add a beneficiary on an I Bond?

  • @wantafastz28
    @wantafastz28 2 роки тому

    What is your opinion of ibond interest rates now?

  • @anamehardtofind8113
    @anamehardtofind8113 2 роки тому

    Will the I bond interest be automatically converted to I Bond principal when delivered each 6 month and earn compound interest or it will be cash in my account not compound interest? If it does get converted to principal and compound, does it count towards the annual purchase limit of $10K? Thanks.

  • @bleacherz7503
    @bleacherz7503 2 роки тому

    Is there an option for the interest compound in the ibond ?

  • @saitou_hajime
    @saitou_hajime 3 роки тому

    Thank you!

  • @gg80108
    @gg80108 2 роки тому

    How does the fixed rate get set on IBonds? Is there a chart of past fixed rate on Ibonds?

    • @patblack2291
      @patblack2291 2 роки тому +1

      do a search for I Bond Rate Chart and it will come up. Lately the fixed rate has been zero, since May 2020. The inflation rate changes every May 1st and November 1st. Your I Bonds change rate their composite rate on a 6-month rolling basis from the date of issue.

  • @wilma6235
    @wilma6235 2 роки тому

    With I bonds, do you receive interest every 6 months or does it compound/add to the bond?

    • @joeb1522
      @joeb1522 2 роки тому +2

      The interest accrues (compounded monthly I believe), but i bonds don't pay any interest until you redeem it or it matures.

  • @mikebrant9836
    @mikebrant9836 3 роки тому +1

    can foreigner buy ibond? if yes how? the asking social security number

    • @rob_berger
      @rob_berger  3 роки тому +2

      www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_ibuy.htm#who