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If you have a small amount to invest, I recommend looking at the Series I savings bonds. You are limited to buying about $10,000 worth per year, but they're pr
by codefreeordie 4y ago
If you have a small amount to invest, I recommend looking at the Series I savings bonds. You are limited to buying about $10,000 worth per year, but they're pretty simple financial instruments, and you can easily understand how they will act.
You can buy arbitrarily large amounts of TIPS, but TIPS are actually pretty complicated securities. I do not advise against their purchase, just make sure that you understand what you are buying and how it behaves in difference circumstances before you invest your money
- LUmBULtERA 4y agoI just purchased $10k of I bonds for this reason. They’re easy to understand. TIPS learning curve seemed much higher, to the point I’ll have to dedicate some time to understand then before even attempting to buy them. Though I suppose I saw the minimum investment for TIPS is $100, so might be worth learning by doing.
- codefreeordie 4y agoThe tricky thing about TIPS is that they don't pay interest based on inflation. Instead, they're a normal bond with some pretty low interest rate, but then periodically the principal amount of the bond is adjusted upward for inflation. This makes TIPS behave weirdly in periods of deflation or of high inflation. (Increasing the principal of your bond by 10% doesn't increase your semiannual coupon payments very much -- but then at maturity your bond will be worth a lot more). The rules aren't that complicated, but scenario planning for what happens to you is tricky.
- LUmBULtERA 4y agoI just ordered $100 TIPS from Treasury Direct... now, if I want to sell it before maturity, it says I need to transfer it to a bank or broker and have them sell? Have you done this? If so, does a bank/broker charge to do this? When it comes to taxes, does the Treasury now send something that shows the interest they have paid? 1099-Int or something? lol. Learning by doing :).
- codefreeordie 4y agoI have not done this. I've only bought Savings Bonds from TreasuryDirect, mostly because the website is absolute ass. Whenever I've contemplated buying "Treasury Marketable Securities", I've always just looked at using my broker. Every year, you'll get a 1099-INT for the coupon payments. But yes, if you want to sell not-at-maturity, you'll transfer it to a broker. That transfer should be in-kind and should not have any tax reporting consequences. When you sell you will get a 1099-B and your broker might not know your cost basis, so you may get a reported basis of zero and have to correct it. Or you might get the correct cost basis.
- LUmBULtERA 4y agoThanks! Ha, the website is terrible! I hate typing in my random, long, and complex password into the virtual keyboard as well... This will be interesting, getting a 1099-INT for interest on $100 of TIPS.
- codefreeordie 4y agoYou may not get one if the TIPS is all you have in that account -- institutions are not required to send you 1099-INTs for <$10 in interest. You still owe the tax, and they might 1099 you.