Why I’m Not Buying I Bonds

I Bonds: Something I had never even heard of a year ago has been front and center in the financial news for the last few months.
But I suppose it makes sense: Nothing tempts those seeking performance and those seeking safety alike quite like a guaranteed nominal 9.62% rate of return, right?
But I fear they’re a distraction for young investors (and don’t worry, we address who they might make sense for in the episode). Plus, I invited Alan Ebright of Hodges Private Client-a wealth management firm in Dallas with $1B+ assets under management-on the show this week to talk about investor psychology and the self-defeating flight to safety.
Time Mapping:
0:00 Intro
1:50 What are I Bonds?
7:50 The temptation to buy
13:00 Who should buy?
18:40 Guest: Alan Ebright
24:00 Investing Diversification
29:30 Rich Girl Roundup: Financial Professionals
34:50 Credits
This Episode’s Sponsors
To learn more about our sponsor, Ubiquity, check out ubiquity.com
To learn more about our sponsor, Caribou, check out www.caribou.com/moneywithkatie/?
For more info on our sponsor, Q.Ai, check out refer.tryq.ai/MBrew
To learn more about Betterment, visit betterment.com/moneywithkatie
Mentioned in the Episode
- Nick Maggiulli's blog, Of Dollars & Data: ofdollarsanddata.com/buying-during-a-crisis/
- DALBAR Quantitative Analysis of Investor Behavior: www.dalbar.com/ProductsAndServices/QAIB
- National Association of Personal Financial Advisors Database: www.napfa.org/find-an-advisor
Follow Along
- Listen to Money with Katie here: www.podpage.com/money-with-katie-show/
- Read Money with Katie: moneywithkatie.com/
Follow Money with Katie!
- Instagram: moneywithkatie
- Twitter: moneywithkatie
- TikTok: www.tiktok.com/@moneywithkatie
Subscribe to Morning Brew
- Sign up for free today: bit.ly/morningbrewyt
Follow The Brew!
- Instagram: morningbrew
- Twitter: MorningBrew
- TikTok: www.tiktok.com/@morningbrew
*Disclaimer: Hodges Private Client is a program offered through Hodges Capital Management, Inc. (“HCM”). HCM is an Investment Advisory Firm registered with the Securities and Exchange Commission (“SEC”), is a wholly owned subsidiary of Hodges Capital Holdings and serves as investment advisor to the Hodges Funds. HCM is affiliated with First Dallas Securities, Inc, a broker-dealer and investment advisor registered with the SEC.
This discussion is not intended to be a forecast of future events and should not be considered a recommendation to buy or sell any security. Past performance is not indicative of future results. Investing involves risk. Principal loss is possible. Investing in smaller companies involves additional risks such as limited liquidity and greater volatility. No current or prospective client should assume that information referenced in this communication is a recommendation to buy or sell any security or is a substitute for personalized investment advice from your individual advisor. HCM does not provide tax or legal advice. Consult your tax or legal advisor for any related questions.
All information referenced herein is from sources believed to be reliable and is provided as general market commentary and does not constitute investment advice. This material was created for informational purposes only and the opinions expressed are solely those of HCM. HCM shall not in any way be liable for claims and makes no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information. The data and information are provided as of the date referenced and are subject to change without notice.
#ibonds #investing #bonds #personalfinance #economy
*Any information shared is not tax or legal advice, and is purely for informational purposes.
Why I’m Not Buying I Bonds

[@davidreus9321]

Great video!!! Now I have more knowledge about finance. In my opinion, mutual funds has to be one of the most profitable ventures out there but younger people must understand that the keyword in all of this is "diversifications" especially given the times. You shouldn't put all your eggs in one basket. I have doing drop shifting, real estate, ETFs, crypto bonds and stock for a very long time but I made my first million (in profit) early this year from cryptocurrency alone (through the help of an IA). I also experiment with a couple of other things. Imagine what the situations would have been giving in mutual funds if I were solely banking on them. That's alot of profit too.

[@alyciagordon3447]

Not quite long I started investing. I'm very curious and need help on how to enhance and increase my returns. Any good investment tips would be appreciated.

[@davidreus9321]

@@alyciagordon3447 Generally, investing requires higher knowledge. For this reason, It's important to have a solid support structure (financial consultant) to guide you through especially in asset picking. I operate with (Alexandra Diana Jose) a consultant who partners with a licensed wealth management firm. For the record, the experience has been the best for my finance. She made me financially stable investing through her help, now I earn on a monthly basis through her passive income strategy... So I'd advise you do get a good investment advisor for yourself.

[@alyciagordon3447]

@@davidreus9321 please how do i get in touch with her. Impressive. Would you mind sharing some more details. I’d like to have a talk with her.

[@davidreus9321]

@@alyciagordon3447 She is easy to find , make a quick research of her on the internet with her name Alexandra Diana Jose . She works with anyone independent of their location. .

[@conniegriggs4996]

Tnx for this info, I just looked up your investment professional and found her page. Her experience is pretty impressive. I wrote her and I'm waiting on her reply.

[@Mymeko1981]

I think it's better safe then sorry. If you have money you don't need and are willing to gamble it and waiting until who knows when for the stock market to stabilize, then good for you👍. But personally I don't have thousands of dollars I am wiling to lose when I can play it safe and still get 9.62 % and it will never lose face value. Just my opinion. Do what works for you.

[@duanejahn2368]

I look at investing using a comparative approach. Let's say I have $10,000 to invest. I have a 2.25% mortgage. For me, the question isn't stocks versus bonds. It's pay down my mortgage or invest in a bond at 9.62%. With the volatility in the stock market, my decision is a "no brainer".

[@brijeshkukreja7411]

There is no harm buying 10k of ibonds considering the current market situation.

[@OroborusFMA]

Stocks are a crap shoot. I Bonds are capped at $10,000/year. What's the harm of putting $10,000 into an I-Bond for a year or so? Wall Street is going to be a rabid bear until the recession ends, and the recession isn't even supposed to *begin* until late 2023 or even early 2024! This analysis is extremely myopic.

[@Ian-mo6je]

Stocks often fall before a recession begins and start to rise well before a recession ends and sometimes stocks can recover from drawdowns at a rate that is much higher than the almost 10% I bonds were offering at this time. If you had purchased at this rate, you would not only have your rate for the second half of the first year drop below 7%, but if you tried to pull the I bond out after a year to put it into equities, you would still lose 3 months of interest. So you would get 6.5% interest. Considering it is not unheard of for stock to rise 20% to 30% during a recovering, you are taking a lot of risk for the safety of I bonds if the recovering happens earlier than you expect.

[@marthamaust5569]

I have instructed my 30 something sons to buy some I-bonds. 2 of them live outside the USA and one of them had their Roth IRA which was invested in stocks shut down because of some rule written during 9/11 which doesn't allow people outside the country to invest in the USA. They both had about 30K sitting in cash, but currently cannot invest in the USA. So what else to do. I thought it was better to open I bonds now because the interest rates are so low in the savings accounts. Do you have any other ideas about how they could invest in the stock market because I do think it is better.

[@MoneywithKatie]

If they're not able to invest in the US stock market, then these would probably be a good alternative! Sorry to hear that, Martha. 😢

[@wd3574]

I purchased I bonds to diversify the bonds portion, which has performed poorly for the last year and a half, of my taxable investments. So I'm saving more than the 9.62%, plus I was able to tax loss harvest. It really wasn't much effort to do this.

[@hanwagu9967]

ok, cherry pick to make the argument why you aren't going to buy i bonds. you negated to mention no state tax. I like how the not to i bond crowd always says well $10k max you can invest isn't much so you aren't going to make much. They then turn around and say you should be maxing out the $6k ceiling of an IRA. $10k in the stock market at 9% isn't life changing money either. What is the difference between a 9% i bond and 9% S&P500 index? Yes, the i bond didn't technically make you anything because of inflation, but neither did the S&P index fund. I do agree, though, that if you have cash sitting around for something on a short term horizon, why wouldn't you buy i bonds over parking in a 1.5% high yield savings account (which is also taxed at marginal plus state tax)? The opportunity cost argument for not buying i bond over stocks equally applies for lower yielding investments. This is also a strange bear market, because we are near highs still across the indices, so stocks ain't cheap and indexes aren't cheap. One point about fiduciary financial advisors you didn't mention are the dually registered fiduciary financial advisors, who can (especially since the Biden Admin adopted the Trump Admin's rule in 2021) earn third party commissions/kickbacks from products they sell or purchase for you in a managed account. It is the most ridiculous thing to say that a financial advisor is having your best interest wearing one hat then be able to take the hat off and all bets are off. Another point you didn't mention about managed accounts is discretionary vs non-discretionary. Those sleeze bag FA's and dually registered FA's with discretionary authority over your account, can simply purchase third party products supposedly acting as a fiduciary. Never ever sign up for discretionary management, I don't care how much the sleezy FA convinces you to put under management. You should want your FA to get your authorization first.

[@shannonoliver7992]

The problem is that the stock market is not cheap right now. The Shiller PE ratio is trading at 30 currently; it should be trading at 15 for fair market value. I wouldn't buy the S&P until it gets under 3700 or preferably 3600. You can do both: buy IBonds now and buy stocks when they're cheap, not expensive. There's nothing wrong with diversification when you're not smarter than the market. I'm not smarter than the market.

[@joelh5445]

This comment is underrated.

[@matthewphillips5483]

I disagree about one point. You ARE smarter than the market because the market has overpaid and also propped up garbage stocks like AMC and GME.

[@shannonoliver7992]

@@matthewphillips5483 lol good one bro! This market is nuts. I like value stocks moving forward. What do you like?

[@matthewphillips5483]

@@shannonoliver7992 I like I bonds (think the yield is going double digits in Nov.), value stocks also (Capital One -CFO- has an amazingly low PE ratio right now just sayin'), and I'm keeping enough free cash reserves in HYSA to be ready in case good real estate deals pop up as I am banking on a real estate "crash" or "correction" or whatever the buzzword is for prices going in downtrend.

[@edwardkyriakidis3619]

You don't have to buy the s&p500. Go for small cap value domestic and international

[@ronloftis9080]

Believe it not...I did what I call and I Bond conversion. We are over 60, and we withdrew 40k from my IRA, and invest in I Bonds. In Roth conversion terms, my I Bonds are a hybrid Roth/IRA conversion in that the principal is now never taxed in the I Bond and the interest on the I Bond is tax deferred like an IRA. And yes, you can invest more than 10k per year, you just have to buy them as gifts for your spouse for future years. In less than 1 year we invested 70k in I Bonds..

[@matthewphillips5483]

Taking risks just to take risks sounds foolish to me. I am not sure that the risk vs reward is there for stocks now compared to Ibonds for the next 12 months. Your advice is trying to fit a square peg in a round hole. The current market is different than the boring but stable markets of years past.

[@basketballjones72]

It's called diversification. You can only buy 10k, so you're foolish if you don't put some of the cash you've been sitting on to work for you.

[@MoneywithKatie]

I don’t sit on cash-I keep enough cash on hand to cover expenses and emergencies and invest the rest! Market timing is a fool’s errand, in my opinion.

[@wallace_n_gromit3180]

by using the GIFT BOX feature of your TreasuryDirect account you can actually buy more than the $10,000 annual limit with caveats.

[@matthewphillips5483]

@@MoneywithKatie I am glad you admit that it is your opinion. It is an incorrect one to boot. There has been many great opportunities to time trades. Just because YOU did not capitalize on it doesnt mean it cant be a good strategy for some. And Ibonds are great for those who dont want to be in the "casino" of the markets. I mean, when AMC is going up despite being a dying business, it doesnt inspire much confidence in the current stock market.

[@ljrockstar69]

I think if you are old, ibonds would make sense, since you don't want to avoid risk.

[@nickdoyle-achievefinancial2464]

Great points! It's also important to consider if the money could be invested in a tax-advantaged retirement instead, since I-Bonds can only be bought in a taxable account. I am not buying I-Bonds or changing my investment strategy at all. I'm buying ~60% VTSAX & 40% VTIAX with every paycheck.

[@andrewpaterson4672]

For the young investor (35 and under) I bonds probably aren't a great idea as they have time to weather several stock market storms. and getting good companies at rock bottom prices is a great way to make huge long term returns, which will likely be better than 9.62%. Old guys like me doesn't hurt to toss 10K into a 9.6% investment; Just have to pay attention to how the rate adjusts every 6 months.

[@matthewphillips5483]

Being young doesnt mean you should be stupid. Many young people have already wasted their stimulus money on things like AMC, GME, BTC.

[@edwardkyriakidis3619]

Very informative video. Thanks!

[@MoneywithKatie]

Thanks for tuning in, Edward!

[@nickhildenbrandt4529]

It is not worth the maybe 1 hour of total hassle to make a guaranteed ~$1500 after taxes? It may not be a life changing amount of money, but if you are advising to pass up $1500 for 1 hour of work I am not interested in your financial advise.

[@ronrabinovitz6910]

Gr8 info on the I-Bonds this week. I just retired at age 66 & your subject on Dollar Cost averaging is right on point. It took me a while to stay the course on this as I was always pulling out during market declines, but not this one. i would also add that it is vitally important to be diversified & use asset allocation in your investment according to your risk tolerance, time horizon (age), & what is it that you want to accomplish. I have delved a little bit with Betterment as their fee is only at .25. I also invest in many ETF's in developing a sound financial plan. I invest with Schwab & Merrill Edge that do not charge any commissions. All of the ETF's I invest in have very low Expense Ratios ranging from .03 to .10. I really enjoy your podcast. Keep up the good work!!

[@MoneywithKatie]

Thank you for your kind words! I really appreciate it.

[@anitathomas5156]

Y

[@shamitbrahma767]

I don't hear her saying that the cheap shares could just stay cheap or goes bankrupt. Then what happens to DCA? iBonds are the best investment in the current market. I would move it into stocks once the market recovers. She has not seen the previous crashes when good companies have disappeared.

[@MoneywithKatie]

It may not have been explicitly stated, but the idea is that investing in broad-based, low cost, diversified index funds will-over time-likely produce the average market returns we’ve historically seen. Investing in individual stocks is not and should not be treated as the same thing!

[@shamitbrahma767]

@@MoneywithKatie No offense but you should have just said DCA in SPY and QQQ and you will be OK. There are so many young people who do not want to invest in the market. PERIOD. They keep their money in a checking account. Don't discourage them to not buy iBonds. Unless you are a professional investor, these are safe government backed bonds. I have been in the global markets for more than 50 years and I speak from experience.

[@MoneywithKatie]

Respectfully, I can’t legally recommend what my audience should or should not invest in with specific ticker symbols. As someone who works in financial markets and is familiar with the regulations, you likely understand why. My intent is not to discourage young investors from I Bonds, but to emphasize the opportunity cost of doing so if your investable income is rather limited and you have a long - and therefore risk-friendly - time horizon.

[@alanebright938]

That is what the DALBAR study is trying to show. Waiting for a recovery or better environment will mean that your future 30yr return will be less than the index. What’s transpired between June 14 and now (if this rally holds) is a prime example. Up 13% off the lows for SPX. If you continue to hold cash and the market keeps going, your long term returns suffer vs that of the index.

[@matthewphillips5483]

@@alanebright938 Yields are yields. Unless you think the SPY is going up > 9.62% in the next 12 months (unlikely) then Ibonds are a good call. Bringing all of this bear market, risk, nonsense into it doesnt change math.

[@scooter10421]

Great explanation. Thank you.

[@micropiredworld]

Great info as always Katie 🙏🙏🙏 Appreciate the high-level breakdown on what can be a really daunting subject 👍👍👍

[@roberthesslinkjr392]

You are missing one point, for anyone with a short term horizon I bonds are a good place to be. Not all of your cash, just cash you might need in one to two years, but it doesn’t mean you can’t still dollar cost average into a good longer term investment mix

[@hunterharris1897]

She actually does cover this point about halfway through the video. She just took longer to get there than I think she should have. But I have money in I-bonds for precisely this purpose. I'll need it in a 1-2 years and it's making more than HYSA, so why not. She made the correct point as well to say not to touch your emergency fund for this (since you can't take it out for a year, but any money you're saving for 1-2 years down would be a candidate for this).

[@MoneywithKatie]

Thanks, Hunter, yes- Unless it wasn’t clear in the video, yes, short- to medium-term savings that would’ve been sitting in cash anyway is a great candidate for I Bonds! I may be too verbose for my own good and will work on getting to the counterpoints more quickly 😉

[@roberthesslinkjr392]

Katie. Most people only look at titles or a few minutes of a video. In this case, they would come away with “you aren't buying I bonds!”

[@MoneywithKatie]

Ha, well to be fair-I’m not! But that doesn’t mean nobody should, which is why the episode is 30 minutes long 😂 It’s intended to be a deep dive that really shows both sides of the issue and thoughtfully considers all angles.

[@jwfraga]

Good info. A little long winded, but well done.

[@MoneywithKatie]

Thank you! Yep, I’m a little too verbose for my own good. Working on it.

[@henry9471]

Very good information, but that cat tail tho !!😂

[@MoneywithKatie]

Samcat is the real star

[@jerryhu79]

Why not put money into TIPS ETF then? You can invest as much as you want and can still have liquidity. And I know this may tick off Katie and her KZbin channel followers, should we reasonably consider Bitcoin and Ethereum investment as part of diversified portfolio? I am not talking about other Altcoins, just Bitcoin and Ethereum. However "volatile" they may be, the idea of a deflationary digital currency, that also functions as a technology, should be considered in addition to stocks and bonds. Instead of investing into technology that will generate profit/money, perhaps there is a new paradigm here that we invest in "money", ie, Bitcoin/Ethereum that is a new technology and will become an integral part of our financial system in the near future.

[@MoneywithKatie]

Good question! I'm personally not an investor in any cryptocurrencies because the lack of underlying cash flow/fundamentals make it too speculative for me and don't pass my investing philosophy sniff test, but each investor has their own risk tolerance w/ respect to speculative, volatile assets.

[@jerryhu79]

@@MoneywithKatie Hi Katie, thank you for the reply. I would love to see you do a video on crypto lacking underlying cash flow/fundamentals in the case of Bitcoin by itself or Bitcoin vs. Ethereum/Altcoins. I am asking because I am not clear on the meaning behind lacking cashflow. A video on your investing philosophy sniff test is appreciated too. Thanks.

[@Georgggg]

If you're working and earn salary, YOU ARE YOURSELF THE BOND in your portfolio. Pull all money in stocks.

[@JasonBuckman]

Anything I would put in I Bonds would be my cash allocation, not what would be going into stocks.

[@KPH3802]

I can’t take serious anyone who talks about finance and NEVER mentions risk when talking about returns. Plus, bringing in a Financial Advisor who is completely biased against Series I Bonds bc they don’t make any money on you buying them.

[@MoneywithKatie]

I don’t use a financial advisor, so definitely no conflict of interest from my end-maybe I should’ve been more explicit in stating the risk of investing in the stock market, though historically speaking over the long-term, it’s a (fairly) low-risk bet - as investing in low-cost, diversified index funds like the S&P 500 over any 20-year period selected from recorded history would’ve shown a net gain. I’ll be more explicit about stating risk in the future, though risk is really only a true concern in the short-term, in my opinion, unless the US economy entirely collapses (not a zero chance, but still quite a low one, and at that rate, we’ve all likely got bigger problems than our portfolios!)

[@KPH3802]

@@MoneywithKatie I didn't mean to imply that you were using a financial advisor, I just meant the guest on this video has a conflict of interest. I just don't think anyone should ever talk about return without talking about risk. They go hand-in-hand. It seems that your strategy is never consider anything else besides investing in an Index Fund. In that case why make more than one video. Nothing ever comes along to change your mind or strategy? You never come across money that you wouldn't immediately put into the stock market?

[@MoneywithKatie]

@@KPH3802 I suppose I wouldn't say *nothing* would ever change my mind, but based on historical data & the information available to me, at this point, no, any investable income I receive that can be invested in the stock market, will be. The only reasons I could see deviating would be (a) if I needed cash for a purchase in 12-18 months, or (b) if I chose to invest in an alternative asset class, like real estate. The data is simply too compelling that dollar-cost averaging in a diversified set of low-cost, broad-based index funds wins in the long-term for me to change course because of a market correction.

[@alanebright938]

That would be true if I were a FINRA licensed broker, which I am not. I’m registered with an RIA and we do not sell products for commission.

[@matthewphillips5483]

@@MoneywithKatie You sound like one of those "real estate doesnt go down" people. You predict the future by looking at pictures of the past. Bad idea. If you look at historical data, you should also notice that the current SP500 is detached from fundamentals compared to most of those past years. (aka overvalued)

[@BillVaughter]

You had me at "Something I had never even heard of a year ago...". If you have a diversified portfolio that includes cash that is earning roughly 2% in a high yield savings account, why would you NOT want to earn several more points on those funds in the next few years with same risk and actually more liquidity than a CD?

[@alleneverhart4141]

Remember Warren Buffet's 2 rules of investing: 1. Don't lose money 2. Never forget rule 1. I think I-Bonds tick all the boxes.

[@HeavensMouthpiece]

This is a bad take. Especially since 7% returns were available from Ibonds while the market was at an all time high. Best place for deployed capital at that time. Correct that someone who has zero dollars invested should only buy stocks right now but just a bad move for anyone else

[@MoneywithKatie]

Respectfully, I disagree-as stated in the video, deviating from your asset allocation to pursue safety will mean lower average returns in the long run. Cash that would’ve been sitting in cash anyway for a purchase 12-18 months away is probably a great candidate for I Bonds, but cash that was otherwise destined for shares that cost 20% less right now than they did a year ago should probably stay the path if you want to achieve the average equity return in the long run.

[@HeavensMouthpiece]

@@MoneywithKatie I guess it depends on your timeline. I'd argue anyone with capital deployed should get into I bonds under the premise that the market could dip lower in the next year. Mitigating downfall in a maturing economy and below replacement birthrates point towards this being a proper response risk wise. I'd personally continue DCA and taking 5-20% to put towards I bonds until they are maxed out.

[@MoneywithKatie]

@@HeavensMouthpiece Interesting; I've found that the data suggests attempting market timing to be a suboptimal strategy over time, but you're right, it depends on timeline and-relatedly-risk tolerance. My timeline is 30-40 years away, for context.

[@matthewphillips5483]

@@MoneywithKatie This makes no sense to me. If you arent saying that you will get greater than 9.62% returns in the next 12 months, why would you assume SP500 is better for now?

[@MoneywithKatie]

@@matthewphillips5483 I think you might have missed the point I was trying to make-the returns of the S&P 500 don’t matter at all over the next 12 months, what matters is the purchase price of the asset being 20% lower than its previous ATHs. and if you opt out of buying it when the purchase price is lower and only buy it when it’s at all time highs, you’re paying-on average-a higher price per share, necessarily driving your average returns down over time. This is why substituting DCA-ing into the S&P 500 for fixed income is a suboptimal strategy for someone with a long time horizon.

[@aminesaib]

Asset allocation does not mean 0% Bonds.

[@MoneywithKatie]

Perhaps I wasn’t clear; I wasn’t equating the concept of asset allocation with “no bond exposure” - simply stating that if your current asset allocation doesn’t call for bond exposure, foregoing equity investing to invest in I Bonds means deviating from the path and missing the opportunity to buy low cost shares.

[@MomoTrader809]

Buy equities and lose 9% per day!

[@johnlupo3919]

TOO MANY NOISES ON THIS VIDEO!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! VERY ANNOYING!!!!!!!!!!!!!!!!!!!