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Jan 24 2011 12:00AM

Question


With the rising costs of energy and food, is it a good time to invest in I-Bonds?

Answer


FPA member Tom Gartner, CFP®, of ISC Financial Advisors offered the following:

“Investing in I-Bonds or what are also called I Savings Bonds for a portion of your portfolio can be a great hedge against inflation. The bonds are backed by the U.S. government and considered very safe.

“But there are several downsides to consider, including whether or not they may deliver the return necessary to reach your future goals. This may present an ‘opportunity cost’ or more simply what you could have made investing elsewhere. Interest rates and inflation are very low right now, and as a result you are not compensated very much in terms of interest on these instruments.

“Another downside is illiquidity. You cannot sell them at any time; you can only redeem them after a twelve-month minimum holding period.

“And finally, the Consumer Price Index for all Urban Consumers (CPI-U) that drives the value of the bonds may or may not coincide with your personal spending needs. For example if the price of groceries in your area double, but nationally they rise only 20 percent (which feeds into the index), you would not keep up with the rate of inflation.

“You can learn more about I-bonds at TreasuryDirect, which is a U.S. government website.”

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