Doesn't this seem like it is too good to be true?

[NeoConsSuck]

Treasury I bonds pay great interest + bond yield. The one I bought in December yields 7% interest. It is based on the inflation rate and is re-adjusted twice a year.

Assume inflation stays at 5% for the next five years. Every year you buy a $10,000 bond. At the end of 5 years:

Bond-2022 = $10,000 + 25% interest = $12,500
Bond-2023 = $10,000 + 20% interest = $12,000
Bond-2024 = $10,000 + 15% interest = $11,500
Bond-2025 = $10,000 + 10% interest = $11,000
Bond-2026 = $10,000 + 05% interest = $10,500

Now, you are done spending your money. In 2027, you cash in Bond-2022, put $2,500 in your pocket and buy a new bond. And then do this every year: Cash in the 5 year bond, put $2,500 in your pocket and buy a new bond. Every year you get 25% interest payment. You can do this for the rest of your life. I understand the interest rates might change, but you are always pocketing the past 5 years interest rates, without having to spend any additional principle.

[Dan]

1. Ahh, you forgot, money makes money....

[bucolic_frolic]

2. That's not bad if inflation doesn't pass 7% annually

Of course there are taxes to pay.

Personally, super or high dividend stock ETF's that write options against an index and pay monthly have some appeal when used with a DRIP Dividend Reinvestment Plan. In a market crash these can briefly get dirt cheap and yield 7-12% of the purchase price. As shares accumulate, the % yield on the original investment trends upward. But of course cash is not being pulled from them, they are reinvested. They also have exposure to the stock market - indexes, or more broadly. So the principle could go up or down.

[NeoConsSuck]

6. I have two of them

JEPI and HNDL. I have them in DRIP at Ameritrade. Right now, they are underwater, but as you stated, every month I get more shares because of the price drop. When the market rebounds, so will these two.

[A HERETIC I AM]

3. This isn't making sense to me.

I'm looking at the Treasury Direct page on these issues and I can not find anywhere that suggests they will pay 25% interest. I see 7.12% which is stated as the combined rate. A 25% interest rate is not sustainable


Can you provide a link to where you got those figures?

[NeoConsSuck]

4. My assumption was five years of interest @ 5% a year.

You hold each bond for five years and collect five years of interest when cashed in. Then use the principal to buy a new bond, and pocket the five years of interest.

[A HERETIC I AM]

7. OK...fine...I see why you worded it the way you did.

I guess it is just the way it is worded that made me think you thought you were getting a 25% rate of interest.

You did actually say;

"Every year you get 25% interest payment."

Which is not really true. You get somewhat more than 7.12% on your $10K per year though, because the information states the current rate of 7.12% is added to the principal twice a year, on the 6 month and 12 month anniversary of issue. Half of $712 is $356, so from the 6 month point to the end of the year you would be making an annualized rate of 7.12 on $10,356, so your yield is a bit higher than that stated rate.

That is if I am understanding what I read on the Treasury Direct page properly.

Either way, certainly a good rate, considering the 30 year is presently yielding 2.39% on a coupon of 2.25%.

[bucolic_frolic]

5. I think he's assuming 5% per year

so the 25% is a 5 year estimate of interest. It would actually be a little higher because you earn interest on the interest as well. Even so, you've spent $50,000 and are pulling out $2500 per year - 5% or so. Still short compared to inflation.

[doc03]

8. I bought one last year and one this year. The problem

there is a $10000 yearly limit on Treasury direct. You can have your income tax refund with a paper I bond. I think the limit on them is $5000 per year. They pay 7.12% percent until May and they will likely increase then also. My bank M M paid .1%. That's what I have been doing with my RMDs.

[doc03]

9. There is also no state or local tax on them. You aren't

risking your money on Wall Street.

[PoindexterOglethorpe]

10. Because stocks return less than 5% a year.

Oh, wait. Over the long term, as in since 1929 or so, stocks return at least 8% a year. Yes, it varies a lot from year to year, but averaged out, it's 8%.

So don't risk your money on Wall Street.

[doc03]

11. I am 74 years old, from what I have read at my age you should have no more than 40-45%

invested in equities. At my age if we have a bear market I may not ever recover my loses. In 2008 instead of
selling out I stayed in the market and gained about 300% but that took a decade. I am required to take some RMDs
every year from my IRA that is around 42% equities. What do you do? Put the money in the bank or a MM mutual fund
and get .1% interest, buy I bonds and get 7.12% or be overloaded in equities. I am satisfied with my home I don't
need or want a newer bigger home. I bought a new car two years ago, don't need a car. I help my nieces out and the last
two years I have been putting $10k in I-Bonds, good interest rate and zero risk.

[PoindexterOglethorpe]

12. I am 73 years old myself.

And where in the world are the bonds that pay 25% interest, as referenced in the OP? Or even 7.12% that you've named?

I'm not saying a person should never buy bonds, But they should be no more than 40% of your portfolio. Bonds are risky in a very different way than stocks, because the interest they pay is so low, that you invariably lose to inflation. Even Warren Buffet thinks people should have a very low percentage of their money in bonds. https://www.investopedia.com/articles/personal-finance/121815/buffetts-9010-asset-allocation-sound.asp

And overall, a 60% stock and 40% bond portfolio is the safest and most profitable.

[doc03]

13. He is talking about US government I Bonds. I Bonds interest is based on the inflation rate

each 6 months. I Bonds purchased from Nov 21 to thru Apr 22 are paying a yearly rate of 7.12%. I would
bet the inflation rate will be higher and I Bonds purchased from May 22 thru Oct 22 will pay more than 7.12%.
I Bonds have a fixed face value of $10000 plus interest they can't lose value. There are no state and local tax on I Bonds either.

He is being conservative saying if an I Bond pays 5% per year it will accumulate 25% interest over 5 years. But it would be actually more than that because it is compounded every 6 months. They are paying 7.12% currently.


I have a retirement fund at T. Rowe Price. They reduce your exposure to stocks with your age, at this time it is about 40% equities and 60 Fixed Income.

I have another retirement fund with Vanguard that I manage myself at 40/60. Vanguard is more conservative and recommend
even less in their retirement funds.

I have done very well with both over the years.