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This is where financial advisors say bonds could work in your portfolio

I-Bonds are currently paying 9.62% annual interest through October, which financial experts say presents an opportunity for investors with a range of goals.

These federally backed assets are nearly risk-free and protected against inflation, with interest rates changing every six months based on the US Bureau of Labor Statistics consumer price index. The latest rate hike was fueled by inflation data from March, which showed annual price growth of 8.5%.

“As of today, there really isn’t a better deal,” said certified financial planner Byrke Sestok, co-owner of Rightirement Wealth Partners in Harrison, New York.

For my wealthy clients, this is a cooler place to park their cash reserves. For wealthy clients, it is an investment decision.

Byrke Sestok

Co-owner of Rightirement

However, one of the downsides of I-Bonds is the annual purchase limit, Sestok said. Individuals can purchase $10,000 per calendar year and use their federal tax refund to purchase an additional $5,000 in paper bonds. You can also buy another $10,000 through corporations, trusts, or estates.

“For my wealthy clients, this is a cooler place to park their cash reserves,” he said, explaining how higher earners could have cash on hand for future opportunities. “For wealthy clients, it’s an investment decision.”

For example, $10,000 in I-Bonds accounts for 10% of a $100,000 portfolio, while the same investment accounts for just 1% of $1,000,000.

I Bonds are like screwdrivers with a Phillips head on one side and a flat head on the other, Sestok said. “There’s a dual purpose depending on where you are in the net worth space.”

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Still, I-Bonds could be beneficial for a number of investors as long as they’re comfortable with the lack of liquidity, Sestok said.

For example, you can’t tap the money for at least a year, and if you sell I-Bonds within five years, you’ll lose the three months of interest you earned right before the sale.

John Scherer, a CFP and founder of Trinity Financial Planning in Madison, Wisconsin, says I-Bonds can serve multiple purposes depending on an investor’s goals.

As a rule of thumb, he recommends keeping 10% of annual income in cash and another 20% for an emergency fund, with entrepreneurs or small business owners keeping double the amounts in a savings account or deposit slip.

You might consider buying I-Bonds in addition to those cash reserves, with the option to add I-Bond funds to your investment portfolio after a year, Scherer suggested.

Buy some [I bonds] short term while they pay higher rates and if that ever changes you can always take them out.

John Scherer

Founder of Trinity Financial Planning

Additionally, an investor nearing retirement might consider using I-Bonds as part of their short-term bond fund allocation, he said.

“Buy some [I bonds] In the short term, while they’re paying higher rates, and if that ever changes, you can always take them out,” Scherer said. “After the first year you are completely flexible.”

I-Bonds can also be a place to park cash that you won’t need for at least a year, e.g. B. Money for a wedding or buying a house, he said. Currently, you can get a better return than you could with a savings account or a one-year certificate.

https://www.cnbc.com/2022/05/03/heres-where-financial-advisors-say-i-bonds-may-work-in-your-portfolio.html This is where financial advisors say bonds could work in your portfolio

Gary B. Graves

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