@Sophie:sophie wrote:jhogue - thank you for that great summary and the research!grapesofwrath wrote:jhogue - thanks for the reply and taking the time to dig up those links to previous discussion on I and EE bonds. It would be interesting to know if the participants in that discussion are still around and if their views and enthusiasm have changed given the real rates for these products have sunk while nominal bill returns are inching up.
IMHO, Treasury bills are the way to go right now, especially with the Fed still planning to bump up interest rates. They provide about the same yield as 1-2 year CDs but can be sold without penalty (apart from slight reduction in value if interest rates go up). I'm still hoping the I Bond fixed rate will go up in November so I'm waiting until then before buying this year's aliquot.
1. It is possible that the liquidity of plain vanilla short term Treasury bills might win out over the next year if the Fed jacks up short term rates. Who knows what they will do? However, the I bond/ 1 year Treasury rate spread now stands at + 0.69% (see my chart above). Over the 30 year life of $15,000 (one year’s purchase limit of I bonds), that would amount to $3,105 in additional tax differed earnings, compared to 30 consecutive 1 year Treasury bills at the same spread. And don’t forget that taxes on T bill earnings will be due each year. Unfortunately, T bills do not have tax deferral and annual I bond purchases are a “use it or lose it” proposition.
I too am hoping that the I bond fixed rate goes up in November. Regardless, if you are thinking about buying I bonds in November, be sure to see the blog, tipswatch.com, for an excellent forecast of the fixed and variable rates for new I bonds.
2. Are you still employing the STT strategy you outlined in your post “Tax trickery with short term treasuries” in 2012?
https://gyroscopicinvesting.com/forum/v ... t=trickery
I tried it last year because we sold our house and had to park a big slug of cash in our Fidelity brokerage account. Buying high coupon, maturing T bonds was easy to do and I found it to be an ingenious use of the differential tax policy on federal vs. state/local taxes that also captured the tax loss. Yet another “free lunch”! (or at least, “free desert”).
I also loved WildAboutHarry’s embedded Groucho Marx story:
“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!"