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Old 07-01-2022, 03:30 PM
 
Location: North Carolina
3,072 posts, read 2,058,351 times
Reputation: 11386

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Quote:
Originally Posted by organic_donna View Post
I am just starting to buy treasuries and hold them to maturity, have you found anything better? How about floating rate bonds?
Treasuries are part of our bond holdings and we always hold to maturity. There have been multiple years in past when Treasury rates were so unappealing I put that bond money elsewhere, like a bank CD or a bond ETF.

I am not sure what a floating rate bond is, although I did buy a bond once that increased it's rate during the term, that was stated up front, guessing that was to encourage buyers to stick with it, not cash it in.

Once I bought an FRN from Treasury but right now cannot remember how that was different from a regular Treasury, my bad.
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Old 07-01-2022, 04:42 PM
 
Location: Kuna, ID
290 posts, read 213,499 times
Reputation: 1081
Quote:
Originally Posted by MadManofBethesda View Post
Well, there's a very simple reason for that. There's been a huge difference in the interest rates they paid.

As you know, the current interest rate (expressed annually) is 9.62%. Earlier this year, from Jan-Apr, although lower, it was still 7.12%. Do you know what it was in 2020?

Here are the rates that were available then:

01/01/20 - 04/30/20: 2.22%
05/01/20 - 10/31/20: 1.06%
11/01/20 - 12/31/20: 1.68%

Would you have bought I Bonds at those rates? Neither would I. Conversely, who wouldn't want to buy bonds paying 9.62%? That's why so many more have been purchased in 2022.
I'm not trying to pick a fight, because everything you posted is correct, but feel compelled to remind people that I-Bond rates are designed to track CPI-U inflation. It may seem like a great investment, because the rates are so high, but will just keep people even with inflation. You put a dollar in now and you'll get a dollar ( in real purchasing power) back in five years. If you redeem before five years, you're losing out to inflation, because you'll give up 3 months of interest. When inflation returns to "normal" the rates will return to unexciting levels as you pointed out. And, personally, I think CPI-U badly underestimates the real inflation we are seeing in energy, food, cars and other staples. So I'm just trying to inject a little reality and chose your post to do it because it illustrates my point. It's good that I-Bonds are available to us so we can keep pace with inflation, but when I see folks scheming to allocate as much money as possible to them, I cringe because they are not making money, just treading water. I-Bonds are good for short-term cash holdings, but there are better investments to make money with in times of runaway inflation. Like dividend-paying stocks and multi-family real estate for two examples.
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Old 07-01-2022, 05:31 PM
 
Location: Omaha, Nebraska
10,376 posts, read 8,018,796 times
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True. I-bonds are inflation-protected cash, and should be regarded as such. They occupy part of the cash portion of your portfolio.
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Old 07-01-2022, 07:21 PM
 
Location: Silicon Valley
7,658 posts, read 4,630,985 times
Reputation: 12750
Quote:
Originally Posted by ChessieMom View Post
LOL! How did you miss this until now??

Well....I remember when they first came out and I thought it was the silliest thing in the world....as if the government would actually pay to protect against inflation on the dollar....I took it to be like the fox guarding the hen house.



Then I went through a long period where I equated deleveraging mortgages (I have rentals) as the same thing as buying bonds (totally incorrect)....and then bonds didn't pay anything for awhile....and now I'm getting into bonds a bit.
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Old 07-05-2022, 06:39 AM
 
2,618 posts, read 2,309,700 times
Reputation: 4477
Quote:
Originally Posted by Bruceski44 View Post
I'm not trying to pick a fight, because everything you posted is correct, but feel compelled to remind people that I-Bond rates are designed to track CPI-U inflation. It may seem like a great investment, because the rates are so high, but will just keep people even with inflation. You put a dollar in now and you'll get a dollar ( in real purchasing power) back in five years. If you redeem before five years, you're losing out to inflation, because you'll give up 3 months of interest. When inflation returns to "normal" the rates will return to unexciting levels as you pointed out. And, personally, I think CPI-U badly underestimates the real inflation we are seeing in energy, food, cars and other staples. So I'm just trying to inject a little reality and chose your post to do it because it illustrates my point. It's good that I-Bonds are available to us so we can keep pace with inflation, but when I see folks scheming to allocate as much money as possible to them, I cringe because they are not making money, just treading water. I-Bonds are good for short-term cash holdings, but there are better investments to make money with in times of runaway inflation. Like dividend-paying stocks and multi-family real estate for two examples.
I understand your point, but divided paying stocks are not an alternative to bonds, they are still stocks. I am retired and using a 65/35 asset allocation. Currently bonds or CD’s are my only option for my fixed income allocation.

These are unusual times, with interest rates being so low, retirees used to be able to live off their income from bonds, but we haven’t been able to do that for a long time.

Last edited by organic_donna; 07-05-2022 at 06:51 AM..
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Old 07-05-2022, 09:30 AM
 
Location: Kuna, ID
290 posts, read 213,499 times
Reputation: 1081
Quote:
Originally Posted by organic_donna View Post
I understand your point, but divided paying stocks are not an alternative to bonds, they are still stocks. I am retired and using a 65/35 asset allocation. Currently bonds or CD’s are my only option for my fixed income allocation.

These are unusual times, with interest rates being so low, retirees used to be able to live off their income from bonds, but we haven’t been able to do that for a long time.
I'm pleased that your allocation works for you. Personally, I have no use for most bonds- they no longer provide the balancing effect they used to. With coupons in the 2-3% range and price drops resulting from rising interest rates, they are now a falling double-edged knife. Those returns barely exceed even "normal" inflation rates. And I believe they have recently become more highly correlated to stocks in general, thereby reducing the counterweight effect that most have sought them for in the past. When the Fed dropped interest rates, I dropped the classical approach and began looking for reasonably safe alternatives to bonds. During the depths of the COVID lockdown, a couple of my dividend stocks stopped paying temporarily, but my income dropped by only 17%. Of course, the portfolio value dropped like everyone else's, but my income was mostly sustained. As of this moment, with the S&P500 down 2% today and down over 21% YTD, my portfolio is down 1.32% today and down almost 7% YTD. It doesn't go up as much, it doesn't go down as much and my income is undiminished.

My fixed income portfolio is comprised of preferred stocks and baby bonds (equity traded debt) which pay an average of 7.4%. Yes, it's underperforming inflation, but there are no purchase limits, no liquidity restrictions and the rates are fixed or will float with rising rates. There are many bargains in this area now with investment grade issues dropping in price to the point where their yields are 5% and higher. If you can accept some risk on small allocations, 10% yield-to-call is achievable on below investment grade issues. Due diligence is required to ensure the company's viability and that they will continue paying.

I wish you well with your approach. I'm still concerned that the allure of 10% I-Bonds will mislead many into over-allocating to them. As the accompanying table shows, when inflation returns to "normal" I-Bond rates will drop to unproductive levels. And even though the returns seem high, they just keep pace with inflation. And if you redeem before 5 years, your returns drop. And since we are talking about the government, I think CPI-U is unrealistically low and at some point they will pull the rug out from under all these schemes to load up on more I-Bonds. The worst problem with I-Bonds right now is they still pay 0% fixed rates. The government has been too slow to raise the fixed rate in these times of rising rates. With people buying them hand over fist, there's no real incentive to add a fixed rate component right now. I just want folks to realize they sound really good, but aren't really that good a place to park large sums. Good fortune to all.
Attached Thumbnails
People are buying I Bonds like crazy-latest-example.png  
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Old 07-05-2022, 03:10 PM
 
Location: Occupant of USA.
939 posts, read 427,072 times
Reputation: 1305
So if I understand this correctly. The current rate say if purchased this week, will never go lower? Is there something in them that allows it to go higher or is one stuck with the rate they purchased at? Thanks.
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Old 07-05-2022, 03:38 PM
 
2,618 posts, read 2,309,700 times
Reputation: 4477
Quote:
Originally Posted by Bruceski44 View Post
I'm pleased that your allocation works for you. Personally, I have no use for most bonds- they no longer provide the balancing effect they used to. With coupons in the 2-3% range and price drops resulting from rising interest rates, they are now a falling double-edged knife. Those returns barely exceed even "normal" inflation rates. And I believe they have recently become more highly correlated to stocks in general, thereby reducing the counterweight effect that most have sought them for in the past. When the Fed dropped interest rates, I dropped the classical approach and began looking for reasonably safe alternatives to bonds. During the depths of the COVID lockdown, a couple of my dividend stocks stopped paying temporarily, but my income dropped by only 17%. Of course, the portfolio value dropped like everyone else's, but my income was mostly sustained. As of this moment, with the S&P500 down 2% today and down over 21% YTD, my portfolio is down 1.32% today and down almost 7% YTD. It doesn't go up as much, it doesn't go down as much and my income is undiminished.

My fixed income portfolio is comprised of preferred stocks and baby bonds (equity traded debt) which pay an average of 7.4%. Yes, it's underperforming inflation, but there are no purchase limits, no liquidity restrictions and the rates are fixed or will float with rising rates. There are many bargains in this area now with investment grade issues dropping in price to the point where their yields are 5% and higher. If you can accept some risk on small allocations, 10% yield-to-call is achievable on below investment grade issues. Due diligence is required to ensure the company's viability and that they will continue paying.

I wish you well with your approach. I'm still concerned that the allure of 10% I-Bonds will mislead many into over-allocating to them. As the accompanying table shows, when inflation returns to "normal" I-Bond rates will drop to unproductive levels. And even though the returns seem high, they just keep pace with inflation. And if you redeem before 5 years, your returns drop. And since we are talking about the government, I think CPI-U is unrealistically low and at some point they will pull the rug out from under all these schemes to load up on more I-Bonds. The worst problem with I-Bonds right now is they still pay 0% fixed rates. The government has been too slow to raise the fixed rate in these times of rising rates. With people buying them hand over fist, there's no real incentive to add a fixed rate component right now. I just want folks to realize they sound really good, but aren't really that good a place to park large sums. Good fortune to all.
Thank you for your detailed explanation. I have recently started to buy very short term treasuries and hold them to maturity. I bonds are a very small portion of my portfolio, about 1%. I am currently sitting in an unusual amount of cash, having sold a large stake in Apple which I held for 12 years.
Which preferred stocks do you hold, or is it an ETF? I looked into baby bonds, but I doubt they would be a good fit for me, but I will do my research.
https://www.investopedia.com/terms/b/babybond.asp

Last edited by organic_donna; 07-05-2022 at 04:01 PM..
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Old 07-05-2022, 04:13 PM
 
2,755 posts, read 1,794,030 times
Reputation: 4459
Quote:
Originally Posted by StillinICT View Post
So if I understand this correctly. The current rate say if purchased this week, will never go lower? Is there something in them that allows it to go higher or is one stuck with the rate they purchased at? Thanks.
Rate resets every 6 months
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Old 07-05-2022, 04:32 PM
 
Location: Kuna, ID
290 posts, read 213,499 times
Reputation: 1081
Quote:
Originally Posted by organic_donna View Post
Thank you for your detailed explanation....Which preferred stocks do you hold, or is it an ETF? I looked into baby bonds, but I doubt they would be a good fit for me, but I will do my research.
https://www.investopedia.com/terms/b/babybond.asp
Here are my fixed income holdings with the calculated yields. Of these, CTBB, CTDD, ECCW, HCXY, OXLCL, SACC, SCCD and TANNZ are baby bonds. I would not buy FTAI-B if I was doing it over- too risky. I manage risk in the other issues by adjusting my allocation from below 1% of portfolio up to 4.5%. Some of these I buy to sell off a portion when prices are good. If buying preferreds, I choose cumulative issues which may stop paying dividends but will owe back dividends once reinstated. And the companies must stop paying common dividends before they can suspend the preferred dividends. I bought STRRP expressly because there were accrued dividends and was paid for 7 previous quarters worth in Dec 2021. I just bought more TRTN-D because I like it a lot.
Attached Thumbnails
People are buying I Bonds like crazy-220705-ytw.png  
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