I Bond Investing in 5 Minutes or Less

When it comes to saving for retirement, there are a lot of options out there. You can invest in stocks, you can invest in mutual funds, or you can even just put your money into a savings account. But one option that you may not have considered is I bond investing. Let’s look at the implications of investing in corporate bonds or government bonds. Plus, we’ll explain the differences between the two types of I bonds: Series I Savings Bonds and Series EE Savings Bonds.

Why you should consider investing in I bonds

When the stock market takes a dive, it can be a scary time for investors. But one type of investment can help you weather the storm: I bonds.

What are bonds, in general?

You can invest in many different types of bonds. We’ll focus on two of the most common: corporate and government bonds.

Bonds are essentially loans that you make to a company or government. The entity will pay you interest over time in exchange for loaning your money. When the bond matures, you will get your original investment back.

Investing in Corporate Bonds

Corporate bonds are loans that you make to a corporation. When you invest in a corporate bond, the corporation will pay you interest over time in exchange for loaning your money. When the bond matures, you will get your original investment back.

There are a few things to consider before investing in corporate bonds:

1. Credit Rating: The higher the corporation’s credit rating, the lower the risk that you will not get your interest payments or your original investment back. Investment-grade corporate bonds have a credit rating of BBB or higher by Standard & Poor’s, and Baa3 or higher by Moody’s.

2. Interest Rate: The interest rate on a corporate bond is generally higher than a government bond because there is more risk involved.

3. Maturity Date: The maturity date is the date when the bond will mature, and you will get your original investment back. It’s important to consider the maturity date when investing in a corporate bond because you don’t want to be stuck with a bond that matures right when you need the money.

4. Call Provision: A call provision is a clause in the bond contract that allows the corporation to call (or redeem) the bonds before the maturity date. This means that you will get your money back sooner than expected, but it also means that you will miss out on the interest payments.

Investing in Government Bonds

Government bonds are loans you make to a government entity, such as the US government or a state government. When you invest in a government bond, the government will pay you interest over time in exchange for loaning your money. You’ll get your original investment back when the bond matures.

More on I bonds?

I bonds are considered a very safe investment because they are backed by the full faith and credit of the United States government. However, as advised by Tommy Lucas, a CFP for Moisand Fitzgerald Tamayo, you should not invest money you may need in the following 12 months as that is the minimum holding period for an I bond. He also mentions that “even beyond that, you lose 3 months of interest if you liquidate within 5 years” which is another factor to consider when choosing to invest in I bonds. In contrast, think of the volatility found in crypto markets.

While private companies and the government back bonds, cryptocurrencies aren’t backed by anything.

One of the most significant factors contributing to the volatility of crypto markets is that cryptocurrencies aren’t backed by anything, unlike fiat currencies or commodities like gold, which central banks back. This lack of a centralized authority or underlying asset means nothing stabilizes the value of cryptocurrencies. That’s why so many have lost so much in crypto.

Types of I bonds

There are two types of I bonds: the Series I Savings Bond and the EE Savings Bond. Series I Savings Bonds are designed to keep pace with inflation, while Series EE Savings Bonds earn a fixed interest rate.

If you’re looking to buy an I bond during a recession, your best bet is to go with a Series I Savings Bond. These bonds are designed to keep pace with inflation, which means their value will likely increase during a recession. Plus, you’ll earn interest on your investment, which can help offset any losses you may experience in other assets.

On the other hand, Series EE Savings Bonds earn a fixed interest rate. This means their value will not fluctuate with the economy, and they may lose value during a recession. However, EE Savings Bonds are still a good investment because they are backed by the full faith and credit of the United States government.

So, which type of I bond should you buy during a recession? Go with a Series I Savings Bond to protect your investment from inflation. If you’re more concerned about safety, go with an EE Savings Bond. Lucas mentions that as the Federal Reserve adopts an aggressive approach to bring down inflation, interest rates will likely go down, thus providing a lesser rate of return.

It’s important to remember that both types of I bonds are backed by the full faith and credit of the United States government, so you can feel confident that your investment is safe no matter which type you choose.

There are a few things to consider before investing in government bonds:

1. Interest Rate: The interest rate on a government bond is generally lower than that of a corporate bond because there is less risk involved.

2. Maturity Date: The maturity date is the date when the bond will mature, and you will get your original investment back. It’s important to consider the maturity date when investing in a government bond because you don’t want to be stuck with a bond that matures right when you need the money.

3. Call Provision: A call provision is a clause in the bond contract that allows the government to call (or redeem) the bonds before the maturity date. This means that you will get your money back sooner than expected, but it also means that you will miss out on the interest payments.

So, which bond should you choose?

It depends on your personal situation and what you’re looking for. I bonds might be a good choice if you’re looking for a safe investment with minimal risk. On the other hand, if you’re willing to take on a bit more risk in exchange for the potential for higher returns, other bonds might be a better option.

Should you invest in bonds during a recession?

It depends.

Bonds are a good option if you are looking for a safe investment with a guaranteed return. However, if you are looking for an investment with the potential for higher returns, then stocks, startups, or mutual funds may be a better option.

Remember that there is no such thing as a risk-free investment. Even bonds have some risk involved. But, if you are looking for a relatively safe investment, then bonds are a good option.

Do you have any questions about investing in bonds? Leave a comment below and let us know!

Here’s how to buy an I bond in 5 simple steps:

1. Determine the type of I bond you want to purchase. There are two types of I bonds: Series EE and Series I. Series EE bonds are interest-bearing, while Series I bonds earn interest plus adjustments for inflation.

2. Decide how much you want to invest. You can purchase I bonds in increments of $25, up to $10,000 per year.

3. Choose the maturity date that best meets your needs. I bonds have a fixed interest rate, but the maturity date can range from 1 to 30 years.

4. Determine where you want to purchase your I bond. You can buy I bonds online, through a broker, or directly from the US Treasury.

5. Follow the instructions for purchasing your chosen type of I bond. Once you’ve decided on the details of your purchase, you can follow the instructions for buying an I bond on the TreasuryDirect website. Look at you, you’ve just invested in your first I bond!

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