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A Unique Buying Opportunity: I Bonds

Low interest rates have reduced the attractiveness of fixed income investments, especially with the recent spike in inflation. But rising inflation has made I Bonds appealing, at least for the next few months -- they are paying 7.12% on an annualized basis!

I Bonds are U.S. government savings bonds that earn a composite of a fixed interest rate and an inflation rate. While currently the fixed rate is zero, the inflation rate is 3.56%. The inflation rate, however, resets every six months. Your rate of return will thus vary over time, dropping if inflation dissipates.

To learn more, see the following links from TreasuryDirect:

please note that you cannot buy I Bonds through your brokerage account (like Schwab). You need to purchase them directly from the U.S. Treasury. I Bonds must be held at least 12 months and penalties exist for withdrawals prior to five years. There are limits to how much you can purchase -- $10,000 per person, per calendar year (with additional opportunities in specified situations). The links above tell the whole story. I'm also happy to be a resource.

Words of Wisdom

Bargain ... anything a customer thinks the store is losing money on. -- Kin Hubbard

How Technological Advances Impact Inflation as Measured by CPI

In 1973, my family got its first color television -- a 19" Zenith -- for around $300. The picture was small, the color a bit faded, and there was no remote control. Now you can buy a 42" HD Smart TV for $250. Not only has the price declined, but the quality has significantly improved.

The somewhat controversial Consumer Price Index (CPI) considers two factors in determining the changes in the cost of goods and services. The simple part is the change in price. The cost of a haircut, for example, has risen over time (offset, of course, by a growth in wages). This is fairly easy to track.

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How Six U.S. Stocks Dominate

I find the following chart very interesting:

 

The chart above shows that the combined market capitalization of the FANMAG stocks (Facebook, Apple, Netflix, Microsoft, Amazon, and Google) exceeds that of every major country, except for China. The remainder of the U.S. stock market -- excluding the FANMAG stocks -- is still the largest market in the world.

What does this mean? Like a Rorschach test, the chart can mean different things to different people. For some, it shows that while the FANMAG stocks have done extraordinarily well, there is still a whole investment universe out there, including stocks that may have more attractive valuations. For others, it shows a dominant group of successful companies that exhibit no sign of slowing down (even with heightened regulatory scrutiny).

What do you see? Let me know your thoughts.

Words of Wisdom

The conference was worse than a Rorschach test: There's a meaningless inkblot, and others ask you what you think you see, but when you tell them, they start arguing with you. -- Richard Feynman

When Time is Not Like Money

Time is money, so the saying goes; except when it isn't. Time and money are both highly desired. But money doesn't lose its value when divided, whereas time is arguably less beneficial when broken up into smaller periods.

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What's Up with Bonds? They're Down!

Bonds play an important role in diversifying your portfolio. They typically have lower volatility, thereby dampening your downside risk. (Remember March of last year?) By acting as a ballast when the market drops, bonds allow us to hold on to our stocks as well as provide liquidity if we need to raise cash.

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