Are you worried that the stock market is extremely high right now making your portfolio of stocks and equity mutual funds a little riskier than you like? Or does it concern you that higher inflation will lead to higher interest rates which will cause your bond funds to decline in value?
According to the website: https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm : A Series I savings bond is a security that earns interest based on both a fixed rate and a rate that is set twice a year based on inflation. The bond earns interest until it reaches 30 years or you cash it, whichever comes first. NEWS: The initial interest rate on new Series I savings bonds is 7.12 percent through April 2022.
I-Bonds offer a few advantages. First, while the value of most bonds moves inversely to changes in interest rates (as interest rates increase bond values fall), the value of the I-Bond remains constant and can be redeemed at any time for the face amount of the bond plus all of the interest earned over the years. Plus, the interest rate is reset every 6 months based on the inflation rate at that time. And the value of an I-Bond is backed fully by the full faith and credit of the US government.
One big downfall of I-Bonds is that an individual can only invest up to $15k per year into I-Bonds. To hit that max, you would purchase $10k through an account you set up at www.TreasuryDirect.gov, and would purchase the remaining $5k through your federal tax refund when you file your tax returns each year.
Why not purchase $10k of I-Bonds prior to 12/31/21 and then purchase another $10k in January of 2022 to bring your holdings to $20k? Married couples can double up to invest a combined total of $40k in I-Bonds within the next few months.
If you’re looking to invest more than $10k into this type of treasury bond at this time, you might consider purchasing Treasury Inflation-Protected Securities (TIPS) instead. Check out: https://treasurydirect.gov/indiv/products/prod_tips_glance.htm to learn more about this more sophisticated option. You can also purchase mutual funds that invest in Inflation Protected Treasury Bonds through Vanguard, Fidelity, and other financial institutions.
A chart comparing TIPS to I-BONDs is available at: https://treasurydirect.gov/indiv/products/prod_tipsvsibonds.htm.
Please visit www.TreasuryDirect.gpv for more information about I-Bonds and other government backed fixed income opportunities.