Here’s where financial advisors say bonds might work in your portfolio

The bonds are currently paying off 9.62% annual interest through Octoberpresenting an opportunity for investors with a number of objectives, according to financial experts.

These assets, backed by the federal government, are nearly risk-free and protected from inflation, with rates changing every six months based on Consumer price index by the United States Bureau of Labor Statistics. The latest rate hike was driven by inflation data for March, with an annual growth of 8.5%. in prices.

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

For my wealthy clients, this is a nice place to park their cash reserves. For clients with lower net worth, it is an investment decision.

Byrke Sestok

Co-owner of rights

One of the downsides of I bonds, however, is the annual purchase limit, Sestok said. Individuals can purchase $ 10,000 per calendar year and use the federal tax refund to purchase an additional $ 5,000 in paper bonds. You can also purchase an additional $ 10,000 through businesses, trusts, or properties.

“For my wealthy clients, this is a nice place to park their cash reserves,” he said, explaining how higher-income earners can have cash on hand for future opportunities. “For clients with lower net worth, it’s an investment decision.”

For example, $ 10,000 of Bonds equals 10% of a $ 100,000 portfolio, while the same investment is only 1% of $ 1,000,000.

The ties are like screwdrivers with a Phillips head on one side and a flat head on the other, Sestok said. “There is a dual purpose, depending on where you are in the equity range.”

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However, I bonds can be beneficial to a wide range of investors, as long as you’re comfortable with the lack of liquidity, Sestok said.

For example, you cannot leverage the money for at least a year and if you sell the bonds within five years, you will lose the previous three months of interest earned directly before the sale.

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

As a general rule, he recommends keeping 10% of annual income in cash and another 20% for an emergency fund, with double those amounts for an entrepreneur or small business owner kept in a savings account or certificate of deposit.

You might consider buying I-bonds in addition to those cash reserves, with the option of distributing funds of I-bonds into your investment portfolio after a year, Scherer suggested.

buy a little [I bonds] short term while they are paying higher rates, and if it ever changes, you can always get rid of them.

John Scherer

Founder of Trinity Financial Planning

Additionally, an investor approaching 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 are paying higher rates, and if it ever changes, you can always eliminate them, “said Scherer.” After the first year, you have complete flexibility. “

Bonds can also be a place to park money you don’t need for at least a year, like money for a wedding or to buy a house, he said. Currently, you can get a better return than a one-year savings account or certificate of deposit.

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