Last week I purchased a $10,000 I Bond, which is the yearly maximum allowed by current law. (This is a “per Social Security number limit.) You can exceed this limit by using your federal income tax refund to buy even more I bonds, but this would require me to over-withhold during the year which I do not want to do. I will make another I-Bond purchase early next year as I ease out of the conventional stock and bond markets.
It is time to stop taking risks that are unnecessary. Today’s markets are not properly rewarding risk in my opinion, at least not for folks nearing retirement age.
I realize that I Bonds purchased now will earn a composite rate of only 1.38% through May 2014. However, this is a zero risk rate which will increase with inflation. As long as the value of my retirement portfolio can generally keep up with the inflation rate, I will be OK. If I can do that without risk using I Bonds and TIPS, I am willing to miss out on stock market gains.
As more TIPS become available for purchase inside my 401(k) account (I have most of my 401(k) funds inside a self-directed brokerage account), I will be moving more money from stock and bond mutual funds to TIPS. I am constantly on the lookout for reasonably priced TIPS sold at Treasury auctions and on the secondary market. I bought $20,000 in TIPS earlier this year at auction.
I have to be cognizant of the TIPS maturity dates for two reasons. First, I never want to be forced to sell one of my TIPS before maturity because that could mean taking a loss. Second, I want the TIPS to mature at different years so I can use them to supplement my yearly income.
I Bonds are different because they accrue interest (tax deferred) for 30 years but can be redeemed at any time.
So what do you think I am overlooking in making these decisions?