This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.
Caller: This Caller wanted to know if Bob would recommend purchasing I-Bonds at this juncture given that the rate was reset on May 1st.
Bob said when they reset the rate on May 1st, they decided that the fixed rate, which lasts the life of the bond, will be ZERO. Yup, nada, zippo, zero. The inflation component will be at an annualized 4.84% over the next six months. Bob said he would not buy them now because he doesn't want to get stuck with a 0% fixed rate for the life of the bond.
DAVID KORN: I agree. Unless you think inflation is about to get out of control, I wouldn't go for the I-Bonds right now. The Series EE bonds, which pay a fixed rate, also got a haircut this week. EE bonds now pay just 1.4% a year down from 3.0% on bonds bought in the last six months. Our government seems to be trying to push some people out of savings bonds and into regular Treasuries.
Kirk Comment: We've done very, very well with TIPS in "The Retirement Advisor" model portfolios and we continue to like those at the current base rates. We update this each month. Here is an excerpt from our May 2008 Newsletter (Volume 2, Issue 5):
- 5, 10, 20 and 30-year TIPS currently pay a higher fixed (base) rate than I bonds so their total interest payments will be higher for any inflation adjustment. The base rate or “coupon” is set at the time of purchase but it changes with market demand just like Treasury bills, notes and bonds that have net asset value fluctuation. The principal amount is adjusted for inflation and paid at maturity. If there is deflation, then you get your original investment back For full details, see http://xrl.us/TIPSInfo
- The base rates for TIPS continue their recovery. All TIPS have significantly higher base rates now than I-Bonds. The “flight to quality” by fixed income investors seeking safe returns and fears of inflation after the FOMC cut rates has continued to benefit our TIPs fund, VIPSX, which was up 11.6% in 2007 and is up 3.1% YTD for 2008.
- We do not recommend the 30-yr TIPS and no auctions for them are scheduled.
Get a FREE SAMPLE (January 2008 Issue) of our NEW newsletter, "The Retirement Advisor."
- Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
- Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
- Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.