By David Wilkening, Contributing author
area – Inflation news is almost always serious. But I bonds, a low-risk investment that flies under the radar for many people, offer an opportunity in which higher inflation is a positive thing.
On Monday, May 1, bonds were responsible for the rare gospel inflation story. On that day, it was announced that the I Bond would offer a record 9.62% interest for the next six months. That was no surprise to the founder of a Lexington-based financial advisory firm. Not only did he recommend that his clients buy I bonds several months ago, he brought it close to home by recommending it for his own 92-year-old father.
He is George Gagliardi, founder of Coromandel Wealth Management, financial advisor and certified financial planner.
How do I bond?
Gagliardi has been frequently cited in the media as a superman in recent months to help I-bonds meet growing concerns about persistent inflation. And it is not that he has praised them without reservation.
Among their downsides is that you can’t redeem them for at least a year. And if you cash them out within five years, you’ll lose the three months’ interest immediately preceding the sale, he has repeatedly said.
“I think it’s decent, but like anything else, nothing is free,” he said of those drawbacks.
Gagliardi recommended the government-issued bonds, technically known as Series I savings bonds, to his clients in their quarterly letter in March. They cannot be purchased through a brokerage account, hence why brokerage companies don’t talk much about i-bonds. You must purchase them directly from the US Treasury Department website in https://www.treasurydirect.gov/.
For his father, “he was looking for yield, and these have the added benefit of security,” he said. He had not recommended them in the past because inflation was not an issue before the latter part of the year. “And with lower overall interest rates and lower inflation, they weren’t paying as much,” he said.
“I bond rates include a fixed base rate, currently 0%, and an inflation rate that changes every 6 months,” Gagliardi explained. “I bonds have very little risk because they are backed by the US Treasury, so really the only risk is currency risk. (The value of the US dollar versus other global currencies).”
Who should buy them?
So is it a clear case where most people of various circumstances and situations want to buy bonds, especially in times of rising inflation? “An I bond is not for short-term cash because it has limited liquidity,” Gagliardi said. “You have to hold it for a year, then you can sell it back to the U.S. Treasury, although you give up three months’ worth of interest payments.”
What effect do I bonds have on seniors facing inflation? “Given that one can only buy $10,000 worth of I bonds ($20,000 for a couple) a year, there’s a limit to how much they can help seniors fight inflation,” Gagliardi noted. “For medium-term cash, they’re a good investment. For example, if a couple uses what’s known as a ‘bucket system’ to manage their retirement funds — they need the money over the next one to three years in very low-volatility assets, three to eight years in low-to-moderate volatility, And then.Eight years in high volatility (eg stocks) – I-bonds do well in the first and second ‘buckets’.
While I bonds are not the complete answer to inflation, they can at least play a role in reducing or helping to solve it. “Bonds give you the ability to keep at least a portion of your low-risk assets with inflation,” Gagliardi said, “definitely better than money market funds or savings accounts these days. Right now, you get lower risk and higher returns, but that’s going to continue.” Unlikely to stay. A lot depends on what the Fed does or doesn’t do.
Am I really bonding, as some people say, almost risk free? “As long as the U.S. dollar stays strong against other currencies and the U.S. government doesn’t default on its debt, they’re as close to risk-free as they can be,” Gagliardi affirmed. “There’s risk in any asset, and I bonds have some interest rate risk, but that’s about it.” yes They are good investments for a small part of your portfolio, at least for now.
Should you convert to a Roth IRA? (fiftyplusadvocate.com)
What happens to your debt when you die? (fiftyplusadvocate.com)
Should you buy long-term care insurance? (fiftyplusadvocate.com)