Tags Posts tagged with "I-Bonds"

I-Bonds

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So, after toying with the idea for at least a year, I finally redeemed my remaining I-Bonds earlier this week (around $750 worth) to use the money to fund investments on the stock market.

As such, I opened up a ShareBuilder account since it’s pseudo linked to ING (where I have my savings account).

Now, I know, CapitalOne is about to swallow them both up and re-brand (which I think sucks) but it still seemed like the most appropriate option for me.

So, to sidestep some of their higher fees, I’m abiding by their rules and only investing on Tuesdays.

Sadly, my “cash” deposit didn’t arrive in time to pick up my first group of stocks today so I’ll have to wait until December 11.

No biggie.

More time to research.

I say that, but I’ve made up my mind pretty much already.

Now I know we’re coming up fast on this fiscal cliff and that the bottom could virtually fall out from under me in less than 30 days but you have to start somewhere.

I’m not worried, things always recover. Always.

So, I sold off the I-Bonds partially because the TreasuryDirect.gov website is such a hassle but mostly because I believe that, even with the risk of losing money every now and then, I can “earn” more than $2 per month with a $750 investment.

When I was in the fourth grade (1986), our school had one of those Junior Achievement “Stock Market” games where we were all given some imaginary money and had to pick some stocks and then track/trade them for a couple of months.

This was back before the internet and CNBC so we were all walking around with the business section of the newspaper and lots of graphing paper. Pretty funny mental image…

I mean, do you think 4th graders even know what graphing paper is?

That there’s a Business section?

Or even what a newspaper is?

Anyway, everyday the newspaper listed the NYSE, NASDAQ, and American Stock Exchange. I’m pretty sure newspapers don’t even bother with that anymore — it sure filled up a bunch of pages, though…

Most kids went after cool companies (at the time) like Nike, Coca-Cola, or one of the insurance companies pretty much every one of our parents worked for.

Me?

Well, I wasn’t going to bother with the NYSE or American Stock Exchange cause the print was too small and the font was, well, lame. The Nasdaq listings were larger, had fewer fractions, and, well, they were on their own separate page that, when forced to share the business section with classmates, I’d get it to myself.

The primary stock I picked was ItoYokd.

(I also bought Reebok which was the anti-Nike and was just becoming popular…)

No clue what they do (or did — they’re not listed anymore). In reality, I just though the name ItoYokd looked cool and the price was right.

I won handily riding that stock. Like, quadrupled my initial investment in short time.

It was truly a shame that it was only pretend money.

On occasion, through high school, I’d check up on ItoYokd and kick myself again and again (and then again) wishing the “game” had been real.

Anyway, I’m grown up now (can you believe I’m 36 already?) and have $750 worth of “play” money.

I know hindsight is 20/20, but there are so many sure thing companies that I would have invested in… early.

Google’s one, for sure. I mean, who didn’t see that coming?

I abandoned Yahoo permanently the day I found Google. I switched to Chrome when it was still beta. And I’ve spent countless hours mindlessly looking at satellite photos of places I used to live on Google Earth. Why the hell didn’t I buy in?

It’s a bit late now, obviously, but I knew. Amazon is another perfect example. Who didn’t see that coming?

They’re modern day ItoYokds.

Except that I know (and like) what they do.

So what companies will be part of my initial investment?

Well, here they are:

F – Ford Motor Company : $11.31

I said it years ago and I should’ve put my money where my mouth was. I don’t own a Ford and I don’t really want a Ford, either.

I do, however, like Ford.

Not to the point that I’d put one of those Calvin-pissing-on-a-Chevy stickers on my car or anything but I love that they didn’t need a bail-out, that they use Mike Rowe as a spokesperson, and that they make cars that don’t look like everything else on the road.

Their designs of late have been, well, progressive. Do I think mood lighting and a radio that you talk to are stupid and ridiculous (in that order)? Yes, I do.

But I give them credit for doing something new — something most car companies have been too chicken to even consider.

Toyota has sorta done it with their Scion line (of which I own one) but Ford did it with their flagship brand. Balls.

Hat tip to Hyundai and Kia for doing the same thing — I’d buy in to them too, but they’re both actually still private companies.

Anyway, with Ford on solid ground and now the sudden resurrection of the Lincoln brand, well, they’re a sure thing in my eyes. They pay quarterly dividends too which, I’m sorry, is extra cool.

FB – Facebook : $27.46

A botched IPO, major sell-offs, and tons of bad business press can’t sway me.

While not a social media whore, I visit Facebook first thing in the morning and last thing at night. Every single day. My soon-to-be 65 year old mother does the same. And apparently millions of other people do it too.

The price is right on this one and without a viable competitor in sight (MySpace, what? GooglePlus, who?), it’ll be darn near impossible to overtake them at this point.

As Google is to search and Amazon is to retail, Facebook is to, well, personal web pages and a lot of face/screen time. The ad revenue will only increase as they improve “monetizing” it all and they’ll be up there in the stratosphere with Google and Apple in a few years time…

GOOG – Google : $691.03

Yes, it’s expensive.

And yes, it’s *way* too late to jump on board with dollar signs in your eyes but behind Facebook, this is the site that I spend the most time on.

With an operating system now, being the leader in the browser war, and their own tablet (which will be under our tree this Christmas), they’ve diversified enough so that they’re not going to get overtaken and discarded like Yahoo did.

So while it probably won’t go way up in a hurry ever again, I’m pretty certain it won’t fall much either.

AAPL – Apple : $575.85

I loathe this company.

Always have, always will.

I do have to give them credit where credit is due though. Somehow they’ve turned their millions customers into mindless drones that keep coming back for more. Repeatedly.

I mean, how much of a difference is there between the iPod, the iPhone, the iPad, and the iPad mini? The overlap is tremendous (in name, even) but countless folks own all four devices, upgrade them regularly (at a premium), and can’t stop buying apps and music for them. Cha-ching!

Those Samsung commercials poking fun at Apple fanatics are spot on but, really, a company that regularly needs security and a velvet rope outside of all of their stores is clearly doing something right.

While their ship has long since sailed (rapid growth wise), like Google, I still want a slice.

DNKN – Dunkin Brands Group : $31.18

I don’t really like coffee and donuts are far too expensive these days but I did name my first born Duncan. That’s gotta count for something.

This goes along the same vein as Apple — Dunkin Donuts customers are by-and-large addicts. Loyal addicts.

That, and here in the northeast, they’ve sustained competing entries from Starbucks, Krispy Kreme, and Tim Hortons without skipping a beat. If anything, they’ve grown in popularity. Krispy Kreme and Tim Hortons have even withdrawn from the market.

And with New Englanders frequently moving/retiring to parts of the country with a better climate, the Dunkin empire is primed to expand…

THI – Tim Hortons : $45.70

So while Dunkin Donuts may have a stonghold in the Northeast, they’ve got nothing once you cross the border into Canada.

That’s Tim Horton territory — coast to coast.

With an ever growing population in Canada (mostly due to open immigration) and essentially zero competition in the donut/coffee business, they’re a mainstay north of the border. An icon, even.

Rhode Island and Massachusetts may have a Dunkin Donuts around every corner — big whoop. The second largest country in the world has a Tim Hortons on every corner.

Now, as I said earlier, they tried and failed to enter the market in my neck of the woods but they’re slowly but surely making their presence known in the United States and that’s promising.

Better yet, there are an awful lot of Canadians around (we blend in really well pretty much everywhere in the world) and we’re full of national pride and very loyal to our brands. Hmm…that pretty much sums up why I want it in my portfolio.

LULU – Lululemon Athletica : $70.64

Never heard of them? Well, just wait…

I’d never heard of them either until two years ago when I noticed that my trendy cousin’s entire wardrobe, head-to-toe (and extra comfy looking), was apparently made by the same company.

Since then, I’ve heard their silly named tossed around in high places in the Unites States now-and-then so, while the stock price is kinda high (in my guesstimation), it’s just the tip of the iceberg for them.

Soon it’ll be as fashionable here in the States as it’s been for a few years now in Canada.

Yeah, it’s another national pride selection for me.

Basically, they make yoga clothes. Overpriced and apparently high-end yoga clothes.

I know, I know, so *not* my thing but they’ve almost become more of a “Lifestyle” brand like that overpriced “Life is Good” line that you see so much of.

Their logo is a status symbol. Just wait. They’ll be huge in the US soon.

What do all of these companies have in common?

Mmm… wheels, websites, donuts, and hot bendy chicks in tight pants…

No, actually, they all have a great product and a loyal following.

Sure, gambling on bioscience and pharmaceutical companies could be more exciting and promising but I’m more looking to transition from a sure thing gainer (the I-Bonds) to an even better sure thing gainer that produces healthy returns.

Actually, I’m not looking to gamble so much… I’m looking to win.

This time it’s not pretend.

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Money HoardingComing this Fall on the PIAC network…

So I suppose having hoarding tendancies could be considered a good thing when money is one of the things you hoard.

As my finances clearly show, my “condition” isn’t too bad. If I were totally insane, I’d be swimming in cash like Scrooge McDuck.

But I do have some “investments” that aren’t really performing (and never will) that I’m reluctant to let go of — even when I fully understand the money could (and should) be more wisely used elsewhere.

I’m talking about the I-Bonds.

Sure, my bonds are earning over 4% right now — a lot more than most — but I don’t own enough of them for that high earnings rate to amount to much of anything.

On the flip side, though, I’m carrying almost $25k in credit card debt. And as of last month, nearly half of it is at what I’d consider an obscene interest rate.

One could fund the other.

A few weeks ago, I took a baby step and sold off around $1200 of the bonds to help pay for the auto repairs and a family vacation that we took.

It felt…okay, I guess.

I’m kinda sad cause I really wanted to hit the $10k mark for some reason and now that seems a bit out of reach.

But it’s time to cut the cord.

Frankly, I was never terribly fond of the TreasuryDirect website with its early 1990’s interface and ridiculous login procedure.

There gone.

I’m sellin’ ’em.

Okay, most of ’em.

(You can’t expect me to part with *all* of them so suddenly!?)

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I-Bonds are earning 3.36%Actually, I should say, “I did it.”

Yep, I mentioned a few weeks ago that I was tossing the idea around and I pulled the trigger… I purchased $3700 worth (across 6 bonds) this week.

I’ll purchase another $300 worth next month to hit the allowed maximum (online) for the year.

The guaranteed and entirely risk-free 3.36% return for the next 6 months just felt too good to pass up.

Okay, it’s not *that* great but when compared to the dismal rate that savings accounts are offering right now (and for the foreseeable future), it’s the right thing to do with money that I don’t actually need in hand in the immediate future but would also like access to in the not-so-distant future.

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Okay, so I mentioned the other day how I-Bonds purchased right now will earn over 3% for at least the next six months.

Dare I say it?

That sounds pretty good to me.

The last time I said that (back in April when the 6-month rate was over 5%), I threw a cool grand towards TreasuryDirect and, in hindsight, it was a move that I now feel was pretty wise…though opening a Roth IRA or buying some Ford stock at the time would have made me more money.

Hindsight is 20/20.

But for a totally safe no-risk investment — I did the right thing. My only mistake was not maxing out my yearly contribution back then.

The big downside with I-Bonds is that the money is “locked-up” for 12 months and you can only “buy” $5000 worth per year online. You also forfeit 3 months worth of interest if you redeem them with-in the first 5 years.

I’ve little doubt that I’ll cash out well before the 5-year mark but a 3-month interest penalty doesn’t really turn me off enough to turn another direction. A 12-month holding period isn’t unbearable either — especially when it’s not enough to tap out my savings account.

But on the subject of my savings account…

My ING Direct account currently has $15k in it. On it’s own, it earns a paltry 1.292% or around $16 per month.

Now, I still have the option of purchasing another $4000 worth of I-Bonds in 2009 (because I only bought $1000 worth back in April).

And $4000 at 3.36% (the current rate for the next 6 months) will earn me a little more than $11 per month for, again, at least 6 months.

Doesn’t take a rocket scientist to figure this one out…

      $4000 earning $11 vs. $15000 earning $16

If even for just six months, the I-Bond is more attractive than stashing money with ING.

If the rate gets better in six months, I’ll let it sit there. If it gets worse, I redeem them next November and take the 3-month interest penalty which certainly won’t amount to much since, in that case, the last three months will be earning substantially less than $11 per month.

I haven’t done anything just yet but I’m pretty certain that I’ll be moving some money around at the tail end of the month…

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I’m never really certain.

Back in 2005 I started making monthly I-Bond purchases, you know, under the impression that I was making a low risk but profitable financial move.

The routine lasted for over two years before I realized that the returns were terrible.

Now, though, I look at the little bit that I still have stashed there and it’s currently earning 3 to 4 times as much as the much larger pile of money that I have tucked away in an ING savings account.

So now, 4 years after the fact, they’re looking like a great investment. It’s almost a shame that I have so little in there…

So, this morning, I find myself with an extra $350 burning a hole in my pocket (a pleasant occurrance — due entirely to an increased effort to cut my spending — Thanks DD!) and I think I’ve decided that I-Bonds are the place to go…

Sure, the fixed rate for anything I purchase before April 30 is only 0.7%currently half that of ING — but with the wacky variable rate that the government resets twice per year added to the equation, the rate is actually 5.64% for, at the minimum, the next 6 months. Read about it here.

The only downsides, that I’m aware of, are that I can’t get at the money for at least one year and if I cash out before the 5-year mark, I lose a couple of months worth of interest as a penalty.

Thing is, we’re only talking about $350 here.

Let’s be realistic… I can certainly survive a year without it and if I cash out before the 5-year mark, well, the lost interest is negligible.

And do you wanna know what’s really sad?

The biggest reason I’ve leaning this route this so that my I-Bond balance is 4-figures in the next net worth update, you know, to make that row look a little bit meatier…

And I can honestly admit to the fact that I’m utterly confused as to how the interest rates are calculated — even having “invested” in them for nearly 5 years now…

I figure that it’s better that I do this with the money instead, I dunno, of going hunting for something silly (yet expensive) on eBay…

The alternate plan tossed around (very briefly) was to buy some Ford and General Electric stock but I just don’t feel like $350 is enough to even bother with — especially with the associated fees involved…

I think I’ll just wait until I have $1k burning a hole in my pocket for that sort of thing…

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Pants in a Can Factoid:
An I-Bond is an inflation-indexed savings bond available for purchase from the US Treasury Department.

They have a fixed rate of return plus an inflation premium. The fixed rate and the inflation premium are adjusted every May and November by the Treasury Department but the fixed rate assigned when you buy the bond is good for as long as you hold it.

In my case, the .7% will be fixed for as long as I keep it. The inflation premium rate, however, will reset next month but I will continue to receive the initial inflation premium for the next six months and then it will reset to the rate that is to be determined next month. (See — this is the part where it gets kinda messy.)

The inflation premium, in theory, ensures that you don’t lose the purchasing power of your investment over time.

Still not making sense? Click here for all of the details!

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TreasuryDirect Access CardThanks to Treasury Direct’s overly secure login sequence…

With a positive cash flow again, I seriously considered throwing some money at I-Bonds again, and with interest rates dropping like a rock, if I jumped the gun before the May 1st, when the fixed rates are adjusted semi-annually, I’d have surely been pulling in a better return than what ING currently offers.

On April 30, I decided to make a move. I logged into my TreasuryDirect account…

Or I tried to…

See, for a couple of years now, they’ve had this “virtual keyboard” login sequence. You have to click all over the place on a randomized keyboard to enter your password. It’s more of a pain than anything else. But a couple of months ago, they took it a step further and mailed everyone an Access Card.

I opened it, looked at it, and put it away. It looked like a Bingo Card. No joke, that’s it up on the right.

So now, in addition to the virtual keyboard, they make you play bingo. Again, with another randomized virtual keyboard.

Could they make logging in any more of a hassle? It’s overkill.

Needless to say, I didn’t have the super secret access card on me, so I couldn’t login. That evening, I thought, “Hey, maybe I can squeak in a last minute transaction before the rates change tomorrow…”

I logged in using my wacky bingo card, set-up a transfer for $1000, a click here, a click there… Things were going pretty smoothly — I didn’t even accidentally hit the “back” button (something you can’t do on their difficult to navigate website)

I was almost done, and feeling pretty good about this wise money move I was making. But then I read the fine print — my transaction wouldn’t go through until May 1st.

That was too late. I cancelled the transaction — and thank goodness for that!

On May 1st, the U.S. Treasury cut the fixed interest rate on I-Bonds all the way down to 0.00%. That’s not a typo. The rate is zero. Nil. Nada. Zip.

I’m sure glad I didn’t accidentally throw $1000 in that direction now — can you imagine being stuck with a 0.00% fixed rate? Now, I realize the real rate is 4.84%, but that’s just the inflation component that changes every six months. While that might sound attractive given that most online banks only offer something in the 3% range, it really isn’t, with the fixed rate at zero, you’re only keeping up with inflation — you’re not gaining anything. On top of it, you can’t get at the money for 12 months.

Not much of a deal there.

In the end, it makes me feel a little better about the little I still have invested in I-Bonds which are currently a rate of 6.27%.

Now *that* was a deal…

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Treasury DirectThis afternoon, I redeemed some of the bonds I’d purchased from TreasuryDirect over the past couple of years — $853.55 worth to be exact.

According to Clark Howard, I jumped on the I-Bond and EE-Bond bandwagon much too late:

Series I-bonds come with two interest rates. The first is a fixed interest rate that stays the same for as long as you own your bond. The fixed rate is set when you buy your bond. The second is the floating rate, which is based on the inflation rate in the country. The government resets that rate each May and November.

Series I-bonds that were purchased from 1998 through October 2001 are the best to have. They earn great rates and should probably be held for a full 30 years. That is because they earn somewhere between 3 percent and 3.6 percent (the fixed rate), plus the current rate of inflation. Right now that total is between 6.15 percent and 6.76 percent. That is the best rate on savings anywhere. Remember that the total interest earned changes each six months and will reset again in May.

If you bought your Series I-bond between November 2001 and October 2002, you are currently earning 5.13 percent. A good deal and worth holding on to for now.

However, those who purchased from November 2002 to the present are earning much lower current rates — between 4.12 percent and 4.72 percent. Remember, the difference is based on when you originally bought your Series I-bond.

And looking at the rates I was earning, well, let’s just say that money would serve me better elsewhere. All of them were under 4%.

I’d have liked to cash out entirely, but I’ve got another 3 months to go until I can redeem the remaining funds (around $615) locked up. When the time comes, you can bet I’ll have a zero balance with the government. They’re just not competitive anymore.

As for what I’ll do with this “found” money, I haven’t made up my mind just yet.

I should throw it all into the ING Direct savings account, but I’m leaning more towards throwing around half of it at debt and the other half to my checking account to give myself more of a cash cushion — something I’ve been missing since the final siding payment cleared.

Can You Dig It?

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