I’ve added to safety in the form of Series I Savings Bonds. As one who continues to believe a recession is coming in early 2023, most of my focus is on capital preservation and opportunities in a weakening economy. Even though I’m generally bearish, I still take advantage of bear market rallies as we’ve seen over the last few week. The gains have been nice, but the dance might be over soon. The big unknown is how the market will react to both a weakening economy and a scaling back of the Fed interest rate hikes. There are still numerous scenarios that could play out next year and the difficulty will be trying to time when to go long with more conviction. For now, we’re experiencing layoffs, lowering earnings reports and 3x the desired inflation rate.
Back to I Bonds.
Currently I Bonds are paying 6.89% (bonds issued from Nov 1, 2022 – April 30, 2023). As of today, that’s still below inflation, but it’s a form of safety and paying better than most zero-risk instruments. There are a few things to know about I Bonds:
- An I bond will pay interest for 30 years unless you cash out early.
- You can cash in (redeem) your I bond after 12 months.
However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 18 months, you get the first 15 months of interest.
- From a tax standpoint, you choose whether to report each year’s earnings or wait to report all the earnings when you get the money for the bond.
- In a calendar year, the max you can buy is $10,000 in I bonds (electronic version).
Picked up more I Bonds last week. Now at yearly maximum. 40% at 9.62% and 60$ at 6.89% . I still feel like we go into a recession in 2023, although short lived, and I Bonds are a risk free hedge. https://t.co/eOL58GT7B9
— Ryan (@dayjobtrader) November 20, 2022
YTD Return -2.82%