I referenced this video of TIPS and IBONDs after the latest interview with one of my favorites, Jim Grant. As someone who has an MBA and has invested for many years, I found TIPS to be a somewhat confusing investment. Your explanation of both securities here is excellent and is greatly appreciated! This is an excellent channel.
Americans ! You are so lucky to enjoy the democratic availability of TIPS and I-Bonds. Yes, we have Index-Linked Gilts here in the UK ~ but their purchase is just not so easily accessible to ordinary citizens.
0:14 Tips (Treasure Inflated Protected Securities) 0:57 Principal 1:01 Interest Payment 3:06 Purchasing Power 6:10 Treasury or The Secondary Market 7:15 8:03 I Bonds 8:40 9:03 Electronic Certificates 9:13 Paper I Bonds 12:20 Life Span of Bond 12:27 Disposable before Maturity
Unfortunately, the "income stream" from current TIPS is much less than 3%. In fact, it's less than 1%; IIRC, only 0.125%. Your $100 bond earns less than 13 cents per year! I don't consider it an income stream at all, but I do appreciate the rising principal. Paying the taxes on them is a little tricky, because the advice literature is based on the idea that they've sold at a "original issue discount", that is, less than face value. You're going to be amortizing a "negative discount" (a premium), which offsets your interest payments.
I gave up on TIPS because when you go to buy them, there is a premium attached so you may be paying $109 for a $100 bond. In other words, you are starting off in the hole with no real way to know how long before you can at least break even. Even if you hold it to maturity and get the face value back, you still have to somehow make up for the expense of the premium. At least with an I Bond, you know what you are buying. A $100 bond costs $100. Even a dummy like me can understand them. And I learned a lesson with TIPS funds. I watched while inflation rolled on while the value of the fund dropped due to interest rate hikes, just like any other bond fund. Please correct me if I am wrong. And yes, please. Keep making these short explainer videos. They are more helpful to many of us than you might think.
Since the TIPS principal value increases with inflation, you may get much more than $109 back from that "$100" bond. That's how it protects you. The extra $9 is the cost of the insurance, if inflation doesn't materialize.
Adam, that was an awesome explanation. You cleared up something about principal and interest that I was getting backwards and I never really knew much about Ibonds, though many have been talking about them lately. It was also a good explanation on how they adjust to inflation and interest rates. Thank you.
This is a good, interesting video, Adam. It would have been useful to also discuss owning TIPS in an ETF as part of an IRA. How does that work and is it worthwhile?
In the unlikely event of deflation, how are you credited in taxes when the TIP principal falls below original purchase price? Am I missing something? If a 10 year TIP rollercoasters in principal value, how is the buyer covered against excess taxation?
What’s not to like? A tips mutual fund. You don’t get the hold until maturity and get all of your principal feature as individual bonds from the treasury.
I-bonds question: If i bought $10k own and spouse bought me $10k gift in 2022. Can I cash out both ($10k own, plus $10k gift from spouse) at same time "both $10k" after holding it for more than12 months?
My understanding is, one person/SS# can only get $10k in (digital) I-bonds per year. So if you bought $10k in 2022 and then your spouse gifts you another $10k, that 2nd $10k will be held in a "gift box" until a year in which you don't purchase any I-Bonds on your own. For me detail, read: thefinancebuff.com/buy-i-bonds-as-gift.html#:~:text=You%20buy%20I%20Bonds%20as,can%20buy%20or%20receive%20gifts.
Put simply, yes. As long as the GIFTED $10,000 I-bond from your wife is DELIVERED in a year when you haven't purchased your own I-bonds. In your case she could DELIVER your I-bond Early January 2023. Both the Gifted I-bond AND the I-bonds you purchased for yourself would be redeemable 1 year after their purchase with a 3-month interest penalty when sold before 5 years. This also means that if you change your mind and decide that you want to buy more I-bonds in 2023 (because the I-bonds are now paying 30% annualized), you can't since you were Gifted $10,000 from your wife in 2023. But you (or your wife) could buy more I-bonds in your GIFT BOX(es) in 2023 to again be DELIVERED the following year.
you can buy 10Y Greece government bonds that offer 3.5% interest rates, but no, we do not have a TIPS equivalent. and 3.5% is ridiculous with 15 % inflation. The inflation will last years, and they will use it to inflate away the debts of countries like Greece. I would rather buy gold than the bonds.
@@markoszervos924 I have no special knowledge, it is just my opinion. Ultimately, you have to make your own decision. Personally, I converted a part of my wealth into physical gold, a part into Canadian oil stocks, and I still hold some cash to buy more stocks when the market reaches bottom (likely in a couple of months)
Another I-bond youtuber mentioned that a proposal was in Congress to do exactly that (among a multitude of proposals). But the way such things go, it's iffy if it ever sees the light of day. I think sometimes politicians like to promote legislation, that may never be realized just so they can tell their constituency how they are fighting for the little guy. ...and wow, don't know a lot of middle class savers that could save that much..... ;)
we are in the era of negative real interest rates as a policy to inflate away debts = financial repression, hence holding any debts/bonds is a losing game. I suggest listening to prof. Russell Napier who has covered the topic of financial repression extensively. Gold will be the winner in the long term. Hedge fund managers are yet too slow to grasp it, but central banks have been hoarding gold for a decade. Ultimately, the only buyers of goverment debt will be the central banks. They are doing it even now = yield curve control, openly by ECB and CBJ and covertly by the Fed
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A playlist with these types of videos covering different financial instruments would be awesome!
I referenced this video of TIPS and IBONDs after the latest interview with one of my favorites, Jim Grant. As someone who has an MBA and has invested for many years, I found TIPS to be a somewhat confusing investment. Your explanation of both securities here is excellent and is greatly appreciated! This is an excellent channel.
Americans ! You are so lucky to enjoy the democratic availability of TIPS and I-Bonds. Yes, we have Index-Linked Gilts here in the UK ~ but their purchase is just not so easily accessible to ordinary citizens.
These types of videos are excellent
Excellent information thank you sir
Thank you Adam... that was simple, straightforward and easy to understand... and that takes talent!
Thanks, good clear explanations.
0:14 Tips (Treasure Inflated Protected Securities)
0:57 Principal
1:01 Interest Payment
3:06 Purchasing Power
6:10 Treasury or The Secondary Market
7:15
8:03 I Bonds
8:40
9:03 Electronic Certificates
9:13 Paper I Bonds
12:20 Life Span of Bond
12:27 Disposable before Maturity
Thank you, Adam, for a very clear concise explanation of these options.
Thanks, I really appreciate these short videos. They explain thing's very well for a beginner, as well as someone who is trying to build a base.
Great content...thanks, Adam...much appreciated!!
Thanks for the informative video
Great explanation on those securities!!
Thanks! now I understand
Unfortunately, the "income stream" from current TIPS is much less than 3%. In fact, it's less than 1%; IIRC, only 0.125%. Your $100 bond earns less than 13 cents per year! I don't consider it an income stream at all, but I do appreciate the rising principal. Paying the taxes on them is a little tricky, because the advice literature is based on the idea that they've sold at a "original issue discount", that is, less than face value. You're going to be amortizing a "negative discount" (a premium), which offsets your interest payments.
Absolutely find these helpful. Much aloha!
Thank you
Thank you so much for this video. I will be directing many ppl to this video.
Love these explainers, Adam. More please!
Thank you Adam! As usual, great stuff. The long format and short format are both EXCELLENT.
Adam, thank you so much. Can you also cover T-bills?
These learning videos are fantastic
Keep them coming Adam
I gave up on TIPS because when you go to buy them, there is a premium attached so you may be paying $109 for a $100 bond. In other words, you are starting off in the hole with no real way to know how long before you can at least break even. Even if you hold it to maturity and get the face value back, you still have to somehow make up for the expense of the premium.
At least with an I Bond, you know what you are buying. A $100 bond costs $100. Even a dummy like me can understand them.
And I learned a lesson with TIPS funds. I watched while inflation rolled on while the value of the fund dropped due to interest rate hikes, just like any other bond fund.
Please correct me if I am wrong.
And yes, please. Keep making these short explainer videos. They are more helpful to many of us than you might think.
Since the TIPS principal value increases with inflation, you may get much more than $109 back from that "$100" bond. That's how it protects you. The extra $9 is the cost of the insurance, if inflation doesn't materialize.
Very nice job Adam, especially for those who can’t read.
Adam, that was an awesome explanation. You cleared up something about principal and interest that I was getting backwards and I never really knew much about Ibonds, though many have been talking about them lately. It was also a good explanation on how they adjust to inflation and interest rates. Thank you.
Glad to hear this helped!
Thanks
these are very informational, nice and short, often on a subject I don't have privious exposure to - or as a nice review. thanks
This is a good, interesting video, Adam. It would have been useful to also discuss owning TIPS in an ETF as part of an IRA. How does that work and is it worthwhile?
Love your videos
In the unlikely event of deflation, how are you credited in taxes when the TIP principal falls below original purchase price? Am I missing something? If a 10 year TIP rollercoasters in principal value, how is the buyer covered against excess taxation?
Would TIPS interest be protected from federal taxation in a Roth IRA?
Anything in a Roth should be
You can also skirt around the $10K individual maximum for I Bonds by purchasing additional increment(s) through an LLC(s).
What’s not to like? A tips mutual fund. You don’t get the hold until maturity and get all of your principal feature as individual bonds from the treasury.
Does the increased principal compound? Ie does that 2% increase one year get added to, sat, a 5% inflation the next year ?
I-bonds question:
If i bought $10k own and spouse bought me $10k gift in 2022. Can I cash out both ($10k own, plus $10k gift from spouse) at same time "both $10k" after holding it for more than12 months?
My understanding is, one person/SS# can only get $10k in (digital) I-bonds per year. So if you bought $10k in 2022 and then your spouse gifts you another $10k, that 2nd $10k will be held in a "gift box" until a year in which you don't purchase any I-Bonds on your own. For me detail, read: thefinancebuff.com/buy-i-bonds-as-gift.html#:~:text=You%20buy%20I%20Bonds%20as,can%20buy%20or%20receive%20gifts.
Put simply, yes. As long as the GIFTED $10,000 I-bond from your wife is DELIVERED in a year when you haven't purchased your own I-bonds. In your case she could DELIVER your I-bond Early January 2023. Both the Gifted I-bond AND the I-bonds you purchased for yourself would be redeemable 1 year after their purchase with a 3-month interest penalty when sold before 5 years.
This also means that if you change your mind and decide that you want to buy more I-bonds in 2023 (because the I-bonds are now paying 30% annualized), you can't since you were Gifted $10,000 from your wife in 2023. But you (or your wife) could buy more I-bonds in your GIFT BOX(es) in 2023 to again be DELIVERED the following year.
Greetings from Greece
Do we have such kind of
"products" (bonds) in EU
???
you can buy 10Y Greece government bonds that offer 3.5% interest rates, but no, we do not have a TIPS equivalent. and 3.5% is ridiculous with 15 % inflation. The inflation will last years, and they will use it to inflate away the debts of countries like Greece. I would rather buy gold than the bonds.
@@daliborbobr6331 thank you very very much
I appreciate for the knowledge you just offered
@@markoszervos924 I have no special knowledge, it is just my opinion. Ultimately, you have to make your own decision. Personally, I converted a part of my wealth into physical gold, a part into Canadian oil stocks, and I still hold some cash to buy more stocks when the market reaches bottom (likely in a couple of months)
@@daliborbobr6331 3,5% is just 50pips before default
For Greece talking
Very helpful. Thanks.
What if you don’t believe the CP”Lie” :)
chart this
They should revise the max amount of i bonds up to 100k at least. Give the middle class savers some shelter.
Another I-bond youtuber mentioned that a proposal was in Congress to do exactly that (among a multitude of proposals). But the way such things go, it's iffy if it ever sees the light of day. I think sometimes politicians like to promote legislation, that may never be realized just so they can tell their constituency how they are fighting for the little guy.
...and wow, don't know a lot of middle class savers that could save that much..... ;)
Still watching Frank G Melbourne Australia 🇦🇺 ❤️
we are in the era of negative real interest rates as a policy to inflate away debts = financial repression, hence holding any debts/bonds is a losing game. I suggest listening to prof. Russell Napier who has covered the topic of financial repression extensively. Gold will be the winner in the long term. Hedge fund managers are yet too slow to grasp it, but central banks have been hoarding gold for a decade. Ultimately, the only buyers of goverment debt will be the central banks. They are doing it even now = yield curve control, openly by ECB and CBJ and covertly by the Fed