Last year we saw the frenzy of the 9% I Bond sweep across the country, and while the rate was attractive, as with any investment buyers need to beware. In 2022 both stock and bond markets were down double digits while I Bonds were providing a decent return, one of the best performing asset classes short of the energy sector.
While this all seemed great at the time, the allure did have some drawbacks. The first being the liquidity and expected time horizon and the second is the relatively small amount that can be invested in an I Bond. Often, the average investor doesn’t realize that you can only invest $10,000 per person or $15,000 if you use a tax refund to acquire the I Bond. The last drawback, and perhaps the most important, is that the rates reset every six months.
Rate Resets And I Bonds And Your Retirement
In May of 2023, we’re due for a rate reset with I Bonds. This new rate, which will last for six months, is estimated to be an annualized 3.8% – which is roughly cut in half from what it previously was. Why the large decrease? Likely due to inflation. For the sake of comparison, you can probably get a high-yield savings account paying around 4% without any liquidity issues and less restrictions than an I Bond.
What does this mean for your retirement savings and investing? In general, running from equities while they’re down in hopes of chasing the next great thing isn’t an investment strategy. This is a lesson that selling low and buying high isn’t an investment strategy, and that the only investment strategy is truly having an actual, sound investment strategy – and sticking to it, even when the market has ups and downs.
Investing Is For The Long Term
If you’re investing for the long term, and you want equity-like returns, then you need to seek out the asset class that is most likely to give you equity like returns – equities. They historically return between 8-10% per year, while almost never returning 8-10% in a given year. What does that paradox mean? It means you need to stick it out for the long haul and ride through the ups and downs, and the good and the bad in the market, in order to see through the rate of return. You can’t predict the market. These historical returns are over long stretches of time, and you need to approach your investing through that lens.
See the article here.
By Andrew Rosen, Contributor at Forbes
Published May 18, 2023