EE Bonds as Deep Bonds

Discussion of the Bond portion of the Permanent Portfolio

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dualstow
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EE Bonds as Deep Bonds

Post by dualstow » Wed Jan 26, 2022 2:32 pm

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SOME OLDER THREADS ON EE BONDS

# EE Bonds vs Roth IRA # June 2020 | # EE Bonds = 3.5% 20-Year Treasury # Apr 2020 | # ee bonds # June 2017 |
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From an i-bond Q&A Thread:

(kriegs)
20 years for EE doubling. They both earn interest for 30 years.
(jhogue)
I I try to emphasize that I-bonds and EE-bonds are not the same thing. I-bonds are for “Deep Cash.” EE-Bonds are for “Deep Bonds.” Think of opposite ends of the barbell.
(snedgar)
@JHogue, could you expand on your comment, below, regarding ”EE-Bonds are for “Deep Bonds"? I have not previously heard that perspective.
(jhogue)
@snedgar:

Harry Browne originally prescribed a Treasury Money Market mutual fund for the Cash quadrant of the HBPP. The idea of “Deep Cash” originated with Medium Tex. He used it to describe using I-bonds as an improved cash alternative. MT argued that I-bonds are as safe and liquid as a Treasury Money Market, but they offer superior yield and tax treatment. To get full value from I-bonds, though, you must hold I-bonds for a minimum of one year; 5 years to avoid any penalty; and 30 years for maturity.

EE bonds can play an analogous “deep” role in the Bond quadrant of the HBPP. They are as secure as a 20 or 30 year Treasury bond. When held for 20 years, EE bonds double in value, producing an impressive tax-deferred annualized yield of 3.53%. At present 20 year T-notes yield 2.19%. Thus, similar to I bonds, EE bonds offer a superior long-term yield as well as the advantages of federal tax deferral for the life of each bond.

The catch comes in actually holding EE bonds. The annual yield is quite low (0.1% p.a.). Since you cannot get the doubling yield effect unless you hold them for the entire 20 year period, they are not as effectively liquid as I-bonds or regular Treasurys. Many investors also argue that they can beat the 3.53% fixed yield by using stocks instead of bonds. That may be true for some investors some of the time, but it is also beside the point: Holding EE bonds offers the possibility of improving the long term yield for the Bond quadrant.
(Xan)
I agree that I-bonds are a fit for deep cash. If you need to cash them out before 5 years the penalty is really minimal, and you're ahead of where you'd have been with a money market account anyway.

I'm not sold on EE-bonds as deep bonds. If the 30-year Treasury starts yielding, say, 5%, then you can't just sell your EE-bonds you've had for, say, 8 years. You're stuck.
(snedgar)
…. G-Fund…
(jhogue)


1. I agree that the audience for EE bonds is smaller than that of I bonds. I would also add that if you buy EE bonds after you turn 65, you are probably buying them for your heirs.

2. It would take a 300+basis point burst of inflation in order to raise the 30 year T bond from its current 2% yield to 5%. I think that would require enormous structural changes in terms of a reversal of the current demographic trends and inflationista-style monetary policies. Given the Japanese deflationary example of the last 30 years, I can't foresee a scenario demonstrating how that might happen.
(jhogue)
@snedgar:

1. No magic in US savings bonds, just a limited free lunch for the middle class.

2. The only problem I can see with the G-fund is that the rest of us can't buy it.
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Re: EE Bonds as Deep Bonds

Post by dualstow » Wed Jan 26, 2022 2:45 pm

continued:

(barrett)
… So much of EE-Bonds' oomph comes in that one magical day AFTER they have been held for 19 years and 364 days. I-Bonds are almost always a good deep cash deal even if they are only held for one year. Holding EE-Bonds for all those years before the doubling takes place feels like a long sunk-cost exercise. Not saying they absolutely don't have a place in some folks' portfolios, but it's hard to really understand what that 20 years of waiting feels like until one has actually been through it. If circumstances change dramatically and an investor needs to use that money after, say, 17 or 18 years, they probably could have done better elsewhere.

I think it's fair to say that I-Bonds are WAY easier to understand and way more liquid.
(jhogue)
I-bonds are way easier to understand when there is a major upswing in inflation (like right now).

The appeal of EE bonds would be easier to understand if we experienced long-term deflation.
Xan wrote:
Wed Jan 26, 2022 9:24 am

Which I suppose is why you consider it a "deep bond". That makes sense.
jhogue wrote:
Wed Jan 26, 2022 10:32 am
For the benefit of newbies, we should perhaps add to our discussion that each quadrant has a "deep" asset:

Cash = I-bonds

Bonds = EE bonds

Gold = Physical gold personally held

Stocks = individual stocks

The goal is to hold some of each asset with "as few pieces of paper" as possible, as Uncle Harry used to say.
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Re: EE Bonds as Deep Bonds

Post by jhogue » Thu Jan 27, 2022 9:06 am

You want to hold EE bonds for 20 years to get the doubling feature, but you should also save them for a specific goal:
1. EE bonds used for higher education expenses are completely tax free: federal; state, and local.

2. EE bonds can be used to create a self-funded annuity for early retirement before taking Social Security. See Mel Lindauer's posts at bogleheads.

3. EE bonds can be used to fund expensive purchases, such as a new automobile or downpayment on a house.

4. Both EE bonds and I bonds still make great gifts for grandchildren, but not as good as in the past. My father-in-law started buying them ("war bonds") when he was in the Army in World War II. He died in 2008 but his grandchildren are still redeeming the paper EE bonds he bought for them. They doubled in value in 17 years but continued to yield 4% p.a. out to 30 years. Who could have known how great they would turn out to be?
Last edited by jhogue on Thu Jan 27, 2022 10:00 am, edited 1 time in total.
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Re: EE Bonds as Deep Bonds

Post by dualstow » Thu Jan 27, 2022 9:14 am

I think I bought mine in 1999-2000.

Here’s a 2021 AUG article on EE Bonds that I have not read. (Let me just delete all the Twitter crap they appended to the link….)
https://www.forbes.com/advisor/investin ... s-ee-bonds
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Re: EE Bonds as Deep Bonds

Post by whatchamacallit » Sat Feb 05, 2022 11:29 pm

The only thing deterring me from ee bonds this year is I bonds with their incredible rate.

My hope is to be able to max out I bonds before rate change. Then I will move on to ee bonds.

With these great rates I wouldn't want to add to retirement account if I was going to buy bonds in it.
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Re: EE Bonds as Deep Bonds

Post by dualstow » Sun Feb 06, 2022 11:42 am

whatchamacallit wrote:
Sat Feb 05, 2022 11:29 pm
The only thing deterring me from ee bonds this year is I bonds with their incredible rate.

My hope is to be able to max out I bonds before rate change. Then I will move on to ee bonds.

With these great rates I wouldn't want to add to retirement account if I was going to buy bonds in it.
I can’t remember though it may be in the i-bonds Q&A- if you buy $10K in i-bonds is that it for savings bonds for the year or can you also buy $10K in EE the same year?
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Re: EE Bonds as Deep Bonds

Post by ppnewbie » Sun Feb 06, 2022 8:10 pm

What is the G-Fund?

Also its funny this thread popped up. I was just going through some stuff and found a paper EE bond from 2008 and thinking I wish I had a few more of those!
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Re: EE Bonds as Deep Bonds

Post by whatchamacallit » Sun Feb 06, 2022 8:17 pm

dualstow wrote:
Sun Feb 06, 2022 11:42 am


I can’t remember though it may be in the i-bonds Q&A- if you buy $10K in i-bonds is that it for savings bonds for the year or can you also buy $10K in EE the same year?
It is 10K in each series.

https://treasurydirect.gov/news/pressro ... im0112.htm
Under the new rules, an individual can buy a maximum of $10,000 worth of electronic savings bonds of each series in a single calendar year, or a total of $20,000.
I was able to do 10k in i bond and another 10k in ee bond last year.
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Re: EE Bonds as Deep Bonds

Post by dualstow » Mon Feb 07, 2022 7:40 am

Thank you!
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Re: EE Bonds as Deep Bonds

Post by jhogue » Mon Feb 07, 2022 8:01 am

ppnewbie wrote:
Sun Feb 06, 2022 8:10 pm
What is the G-Fund?

Also its funny this thread popped up. I was just going through some stuff and found a paper EE bond from 2008 and thinking I wish I had a few more of those!
The G Fund is one of the funds available in the Thrift Savings Plan, the retirement plan available exclusively to federal employees and military members (analogous to a 401k). The G Fund is composed entirely of US Treasurys and is roughly similar to I-bonds.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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