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Something else I would add - if you're working in the ups-and-downs world of startups and technology, you may have meaty and lean years and during the good year

Something else I would add - if you're working in the ups-and-downs world of startups and technology, you may have meaty and lean years and during the good years find you want to save more fore retirement than 401ks, SEP IRAs and ROTH IRAs (if you're not priced out) allow. One handy way to extend your tax-advantaged space: buy Series I and Series EE bonds from Treasury Direct. Both are tax-deferred until you cash them in. You can purchase up to 10K of each type per year. They are government-backed, highly-safe fixed-income instruments. I bonds will pace inflation (like TIPS) for up to 30 years. EE bonds have low 'normal' yields but they automatically double after 20 years (so around 3.5%/year annualized, better than the rates on 20-year Treasuries). These rates are better than what you get on the open market. And unlike normal bonds, they won't kick out payments that are taxable along the way - you can save the tax bill until you have a lean year then cash them back out (in the case of I bonds at least), or save them to the end of their lifespan (or until they double in the case of EE bonds).

torkins 10y ago
Bonds are a horrific investment in today's market. Rates are lower than they have been since WW2 when they were fixed by the government! The principal and interest risk for owning bonds is essentially at an all time high. You'd literally be better off in cash in rates rise even somewhat in the near future.
- tanderson92 10y ago
  The post you are responding to literally explains how EE bonds are better than those you can buy on the open market. Also, you cannot reliably time the market.
  - torkins 10y ago
    what makes you think this wouldn't be priced into bond yields? There is trillions of paper in the market, an arbitrage is eaten by the entities who make their living doing it. There is no secret edge.
    - tanderson92 10y ago
      EE bonds don't have 'prices', they have fixed yields if held for 20 years.
      - torkins 10y ago
        To be clear, there is a price for the bond, which is the amount you pay for it. For EE bonds, you pay what you choose, and earn the Treasury-specified rate on that amount. However, this amounts to being priced just like other bonds. If you read the Treasury website, you'll find that they specifically state that the rate for newly purchased bonds is set based on current market conditions (today 0.1%). This balance between principal and interest is why people use terms like 'yield' to accurately describe bonds. An EE bond is no different (because there really is no edge), and if you make any more on it (not much), it's because you're giving up the liquidity of a transferrable bond.
        mercutio2 10y ago
        Are you reading what you're replying to? Series EE bonds are guaranteed to double your investment, a return of ~3.5%, if held for 20 years. If you hold for 19 years, they are, as you point out, a terrible investment. But the 20 year yield is decent, for a low risk product, in today's market.
        torkins 10y ago
        I feel like I'm taking crazy pills. I said you make a rate based on the market return (as stated on the treasury site). I also said the additional return you get is based on having it be non-transferrable, and in the case of the annualized 3.5%, 20-year term, severely illiquid asset. That's also true. I think the risk of illiquidity is major risk, and I don't at all agree they are decent investments for that reason. I realize this is a zombie thread but can't help but reply. Just because there are other, also terrible, low risk debt products in today's market doesn't make this one reasonable. The value of an investment has to be measured based on what you're getting out of it, not just relative to other investments. That's why I remarked on being better to be in cash than bonds: bonds have a huge actualized and opportunity risk relative to their yield.
loeg 10y ago
Oh hey, I recognize you u/misnamed. I saw a comment on I and EE bonds and looked up for the username :-).

torkins 10y ago

Bonds are a horrific investment in today's market. Rates are lower than they have been since WW2 when they were fixed by the government! The principal and interest risk for owning bonds is essentially at an all time high. You'd literally be better off in cash in rates rise even somewhat in the near future.

tanderson92 10y ago
The post you are responding to literally explains how EE bonds are better than those you can buy on the open market. Also, you cannot reliably time the market.
- torkins 10y ago
  what makes you think this wouldn't be priced into bond yields? There is trillions of paper in the market, an arbitrage is eaten by the entities who make their living doing it. There is no secret edge.
  - tanderson92 10y ago
    EE bonds don't have 'prices', they have fixed yields if held for 20 years.
    - torkins 10y ago
      To be clear, there is a price for the bond, which is the amount you pay for it. For EE bonds, you pay what you choose, and earn the Treasury-specified rate on that amount. However, this amounts to being priced just like other bonds. If you read the Treasury website, you'll find that they specifically state that the rate for newly purchased bonds is set based on current market conditions (today 0.1%). This balance between principal and interest is why people use terms like 'yield' to accurately describe bonds. An EE bond is no different (because there really is no edge), and if you make any more on it (not much), it's because you're giving up the liquidity of a transferrable bond.
      - mercutio2 10y ago
        Are you reading what you're replying to? Series EE bonds are guaranteed to double your investment, a return of ~3.5%, if held for 20 years. If you hold for 19 years, they are, as you point out, a terrible investment. But the 20 year yield is decent, for a low risk product, in today's market.
        torkins 10y ago
        I feel like I'm taking crazy pills. I said you make a rate based on the market return (as stated on the treasury site). I also said the additional return you get is based on having it be non-transferrable, and in the case of the annualized 3.5%, 20-year term, severely illiquid asset. That's also true. I think the risk of illiquidity is major risk, and I don't at all agree they are decent investments for that reason. I realize this is a zombie thread but can't help but reply. Just because there are other, also terrible, low risk debt products in today's market doesn't make this one reasonable. The value of an investment has to be measured based on what you're getting out of it, not just relative to other investments. That's why I remarked on being better to be in cash than bonds: bonds have a huge actualized and opportunity risk relative to their yield.

loeg 10y ago

Oh hey, I recognize you u/misnamed. I saw a comment on I and EE bonds and looked up for the username :-).