Business, Economics, and Taxes: Capitalism. Yay? >=(

[Handyman]

When there was shortages of TP at all the major retailers I walked to the CVS down the street from me and they had plenty. Everyone was so busy going to Costco/Target/Cub Foods they forgot you can get that stuff pretty much anywhere. People are too addicted to big box stores.

 

[mookie1995]

and now the Target in Tomah, WI doesn't have Kleenex so it's national crisis..

can’t they use a camp sock??

 

[Kepler]

OK, personal finance advice please.

I have about $50k in "Catastrophe Savings," independent of regular savings, vacation savings, etc. Catastrophe Savings is partitioned by us for when one or both of us lose our jobs in a depression or rightwing coup. We'll need to draw about $10k a month to meet bills and basic requirements. So, we have about 5 months' margin.

I know that parking it in a savings account with essentially 0% interest is suboptimal. I thought about putting $10k each month into rolling 6 month CDs, so that I would have a monthly income of $10k if we ever needed to start cashing them out, but even there the interest is essentially 0%. For 12 month CDs it's still well under 1%.

So. What do?

 

[dxmnkd316]

Honestly, the I bonds we were talking about make a lot of sense. You would need to hold for 12 months, but you could over time start to move money towards them.

Remember, your goal for emergency fund is 100% preservation of value over all else. You'll never get even half of stock market returns with consistency. And that's fine. That's not the goal.

 

[Kepler]

Honestly, the I bonds we were talking about make a lot of sense. You would need to hold for 12 months, but you could over time start to move money towards them.

Remember, your goal for emergency fund is 100% preservation of value over all else. You'll never get even half of stock market returns with consistency. And that's fine. That's not the goal.

I understand that. These are by definition non-speculative and no risk.

 

[WisconsinWildcard]

Honestly, the I bonds we were talking about make a lot of sense. You would need to hold for 12 months, but you could over time start to move money towards them.

Remember, your goal for emergency fund is 100% preservation of value over all else. You'll never get even half of stock market returns with consistency. And that's fine. That's not the goal.

Agree with I bonds. Putting 20K in a year myself, using as a contingency fund.

 

[Kepler]

Agree with I bonds. Putting 20K in a year myself, using as a contingency fund.

I thought I bonds had a annual max of $10k? Or are you saying I and EE?

 

[WisconsinWildcard]

I thought I bonds had a annual max of $10k? Or are you saying I and EE?

Sorry, 10K for me, 10K for spouse. You can do additional in trust, tax returns, other ways but I think that is silly/too much work for the benefit.

 

[Kepler]

Sorry, 10K for me, 10K for spouse. You can do additional in trust, tax returns, other ways but I think that is silly/too much work for the benefit.

I didn't know you could do that -- or do you file separately? Apparently you can put an additional 5k of a refund towards I too IINM. So theoretically that's 25k. And I guess you can do direct deposit so that 20k can be pre-tax?

 

[WisconsinWildcard]

I didn't know you could do that -- or do you file separately? Apparently you can put an additional 5k of a refund towards I too IINM. So theoretically that's 25k. And I guess you can do direct deposit so that 20k can be pre-tax?

It is per social security number, no need to file separately. Here is a good walkthrough. https://www.physicianonfire.com/buy-i-bonds/

I have not looked into them much, but my knowledge of EE bonds is they need to be held for 20 years to be worthwhile (double) thus are a bad thing for a contingency fund. iBonds are liquid after a year and have a small penalty before 5 years, but will probably beat savings and CDs, without the risk of losing balance like some bond funds.

 

[Kepler]

It is per social security number, no need to file separately. Here is a good walkthrough. https://www.physicianonfire.com/buy-i-bonds/

Thank you. I understand now about the variable rate, but let's take a simple example.

Say I lock in $1000 at 0% fixed rate and 7% variable rate.

Say in 15 months I cash out.

The penalty is the last 3 months of interest. So, do I realize 7% i.e. $1070?

Then, do I pay cap gains on just the $70?

If I bought in via direct deposit, do I pay income tax on the $1000?

How is this better or worse than using my Fidelity brokerage account, investing in a low overhead bond account, and pushing in and pulling out at will?

 

[French Rage]

Thank you. I understand now about the variable rate, but let's take a simple example.

Say I lock in $1000 at 0% fixed rate and 7% variable rate.

Say in 15 months I cash out.

The penalty is the last 3 months of interest. So, do I realize 7% i.e. $1070?

Then, do I pay cap gains on just the $70?

If I bought in via direct deposit, do I pay income tax on the $1000?

How is this better or worse than using my Fidelity brokerage account, investing in a low overhead bond account, and pushing in and pulling out at will?

I'm assuming you'll have already paid taxes on the $1000 you use to buy; redeeming the principal wouldn't count as income or anything. I'd also assume the $70 would be interest income, like on a savings account or bond. Capital gains would be if you sold the bond to someone else like a regular bond, but it's my understanding these can only be sold to/from the Treasury, so you can't do that here.

(I am guessing on all of this and have done no actual research, fwiw.)

Also, I think the variable rate resets every 6 months (?), so it's not guaranteed it's 7% for the whole year. It might reset to higher, but it also might be lower. The fact that the November reset was so high is why it's getting all of the attention right now. I'm not saying it's not a good deal, just that the 7% isn't guaranteed to be around forever. (And again, it could go higher.)

 

[WisconsinWildcard]

Thank you. I understand now about the variable rate, but let's take a simple example.

Say I lock in $1000 at 0% fixed rate and 7% variable rate.

Say in 15 months I cash out.

The penalty is the last 3 months of interest. So, do I realize 7% i.e. $1070?

Then, do I pay cap gains on just the $70?

If I bought in via direct deposit, do I pay income tax on the $1000?

How is this better or worse than using my Fidelity brokerage account, investing in a low overhead bond account, and pushing in and pulling out at will?

Correct, you would pull out $1070. You pay federal income taxes, not cap gains, but you do not pay state taxes, on the $70. I have not paid taxes on these yet, but that is my understanding. You just pay taxes on the profit, similar to a CD, or interest in a bank account. The rate is just much higher right now, and on balance, is typically higher than that of CDs and high yield bank accounts.

The overall bond question is much more complicated. In general, your overall asset allocation will contain a percentage of bonds, essentially to provide stability were stocks to underperform or crash. However, there are times where bond funds can lose principle. https://www.investopedia.com/articles/bonds/08/lose-money-bonds-losses.asp With Ibonds, there is no chance of losing principle (save the government collapse...so there's a chance but you will have worse problems).

For me, I am early in my career. I have a very low bond allocation (90-95/5-10). I plan to have a portion in ibonds, but more as a contingency fund right now. As a portfolio grows, most cannot have all of their bonds in ibonds due to limits in purchasing, plus the difficulty in rebalancing ones profile, thus other bonds are typically used.

 

[WisconsinWildcard]

Also, I think the variable rate resets every 6 months (?), so it's not guaranteed it's 7% for the whole year. It might reset to higher, but it also might be lower. The fact that the November reset was so high is why it's getting all of the attention right now. I'm not saying it's not a good deal, just that the 7% isn't guaranteed to be around forever. (And again, it could go higher.)

Correct. Buy before April, and you at least get 6 months of 7%. After 6 months, there will be a new rate, but given inflation, it will not be 0 and will very likely higher than a high yield savings account. Even if it were 0, and you take out at 12 months, your rate would be 3.5% over the 12 month period, which is why it is a reasonable option for the next 12 months, or longer if you wish.

 

[French Rage]

Correct. Buy before April, and you at least get 6 months of 7%. After 6 months, there will be a new rate, but given inflation, it will not be 0 and will very likely higher than a high yield savings account. Even if it were 0, and you take out at 12 months, your rate would be 3.5% over the 12 month period, which is why it is a reasonable option for the next 12 months, or longer if you wish.

Oh yeah, definitely. Even if it edges back down and even if you lost the 3 months interest, it still stacks up very well against all other savings accounts and government fixed income at the moment, as those are about as low as they can get.

 

[dxmnkd316]

One thing to note about bonds and taxes, you need to decide up front if you want to pay taxes on the interest as you go OR when you cash them out. You must decide this up front.

 

[Kepler]

One thing to note about bonds and taxes, you need to decide up front if you want to pay taxes on the interest as you go OR when you cash them out. You must decide this up front.

Stupid question maybe but why would anybody pay as they go? That would defeat compounding.

 

[dxmnkd316]

Stupid question maybe but why would anybody pay as they go? That would defeat compounding.

Because if most of the interest is made when you owe no taxes because you don't make enough like when we used to get bonds as kids. I suppose now, it wouldn't make sense for you. Either way, it's a decision that must be made up front. IIRC.

 

[Kepler]

Because if most of the interest is made when you owe no taxes because you don't make enough like when we used to get bonds as kids. I suppose now, it wouldn't make sense for you. Either way, it's a decision that must be made up front. IIRC.

Thanks. I was thinking of it as the traditional maximize income and deferral now, then pay after retirement when your income is presumably lower. If it's higher, pay with a smile, you won.

 

[LynahFan]

OK, personal finance advice please.

I have about $50k in "Catastrophe Savings," independent of regular savings, vacation savings, etc. Catastrophe Savings is partitioned by us for when one or both of us lose our jobs in a depression or rightwing coup. We'll need to draw about $10k a month to meet bills and basic requirements. So, we have about 5 months' margin.

I know that parking it in a savings account with essentially 0% interest is suboptimal. I thought about putting $10k each month into rolling 6 month CDs, so that I would have a monthly income of $10k if we ever needed to start cashing them out, but even there the interest is essentially 0%. For 12 month CDs it's still well under 1%.

So. What do?

If you're truly lazy, Ally's savings account APY is 0.5% (their 12-month CD is only 0.55%). Not great, but "infinitely" better than 0%.