I Bonds are the New Cash – Kind of…
According to bankrate.com the average yield for a 1 year CD is 0.68% and the average money market savings account is earning an annual rate of 0.39%. Your safest money is losing purchasing power, which is unfortunate especially if an alternative can be found without any additional credit risk.
A very competent alternative exists – I Savings Bonds from the U.S. Treasury are currently yielding 1.38%. Currently I Bonds are paying a base rate of 0.2% plus the inflation rate adjusted every 6 months. The base rate can change for future bond issuances but inflation adjustment will be consistent across all I Bonds regardless of issue month.
The purchasing power of your cash is better protected against inflation
Unlike CD’s taxes are not paid on interest income until the bond is redeemed
State income tax free
Bond proceeds used for education needs could make the interest earned tax-free (subject to various income and use constraints)
You are locked-in for a year, kind of like a 1 year CD
If you redeem the bonds during the first 5 years, you lose 3 months interest
There is a bit of hassle to get it all set up and possibly a little more work to get at your funds when needed
Invest online at treasurydirect.gov
Maximum of $10k a year can be purchased ($20K for married couples)
I am recommending younger clients to work towards keeping their 6 month emergency cash reserves in I bonds. I am encouraging older clients to have 1 to 2 years of anticipated annual spending needs invested in I bonds by the time they retire. These funds can be used as part of their fixed income allocation and also be a source of funds during downward markets in order to prevent selling other investments at possibly depressed prices.
Good I Bond primer straight from the US Treasury: http://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds_iratesandterms.htm
Streamlining Monthly Bills
If you pay off your card in full every month, consider placing recurring bills on one dedicated card. Use a card which has frequent flyer miles or cash back. As opposed to having automatic withdrawals from your checking, you will not bounce a check, you build benefits, and you have recourse. We currently have our phone, gym membership, health insurance and Wall Street Journal billings on our credit card.
What to Keep and What to Toss
The following link from Consumer Reports offers a good overview and summary table on basic record keeping and what to keep and what to toss –
IRS Publication 552 offers a fairly concise description of the manner and types of records individuals should keep for their tax returns –
IRS Publication 583, Starting a Business and Keeping Records is a clear consise referral source for those contemplating, starting and running a business –
I don’t think I will ever be able to toss out a personal or business tax return even if the often suggested 7 seven year time-frame has passed. For those who can, you may want to consider plucking your old W-2s and filing those away which the IRS recommends keeping until you start collecting Social Security.
The IRS also recommends keeping the following forms for all years until all distribtuions are made from your IRA(s) – Form 5498 IRA Contribution Information, Form 1099-R Distributions from Pensions and IRAs, etc, and Form 8606, Nondeductible IRAs. Parsing these forms and filing them from older tax returns before tosing them is likely a good idea.
Keeping it Simple
Welcome to my Carrick Bend Advisors LLC blog/journal. I think one of the benefits I offer my clients is that I work to get all of their investments coordinated and following a well thought out cohesive strategy. Assets are centralized, redundant accounts are closed and all investments are viewed in an overall portfolio context. While the problem is complex, the answer becomes clearer with simplification.
Taking this logic into our daily lives, I have some suggestions of what you can do to simplify your daily life and to help manage much of the unsolicited clutter that incessantly bombards us.
Get rid of mail order catalogs – www.catalogchoice.org
Sign up for a free account which allows you to opt out of mail order catalogs. I have done this religiously over the past few years and it has really worked. It has not hindered the few catalogs I do like mailed to my home.
Prevent unsolicited credit card and insurance offerings – www.optoutprescreen.com
Sponsored by the four major credit rating agencies, consumers are allowed to opt out for credit card and insurance solicitations for 5 years or permanently. Your shredder will thank you.
Decrease unsolicited telemarketing – www.donotcall.gov
Managed by the Federal Trade Commission. Enter your home, cell and office phone numbers. Charitable organizations and political groups are exempt as well as businesses which you have purchased from during the past 18 months. Still very much worth the effort.