Investing in I Bonds

Comments on “Why I Bonds Have Appeal When Inflation Is Rising,” by Charles Meyer, MBA, CFP, in the June 2022 AAII Journal:

Since my wife and I are retired and in our 70s, we are buying U.S. I savings bonds for long-term health care needs. We max out our yearly purchases at $30,000 (both Social Security and trust). The Federal Reserve tax deferral, being state and local tax-free, along with compounding, helps as an inflation hedge for ever-increasing health care costs. Health can deteriorate quickly, so we don’t feel that at-risk equity investments are appropriate.
—Thomas W. from Arizona

Thomas, you wrote that you are able to purchase $30,000 by purchasing $10,000 in the name of a trust. Is this a revocable trust with your Social Security number (SSN) or is it an irrevocable trust with its own employer identification number (EIN)? I found the following in a post at Bogleheads.org: One can have an individual account and an entity account (e.g., trust) using the same SSN. It is allowed because they are different types of accounts.
—Peter L. from California

I agree with commenters lamenting the dismal TreasuryDirect.gov website. My bigger concern is with the inscrutability of interest accruals in the account. I log in to check my account every few months since my first purchase in January this year. So far, their “system” has added interest in strange amounts twice, with no explanation, dates or time periods regarding the additions.
—Julian B. from Texas

Julian, yes, the way the Treasury calculates the interest may seem strange but it is completely predictable if you have the correct formula. I have built a spreadsheet that tracks my payments, and it comes out to the penny every month. It took me months to sort out both the correct number of significant digits to use to convert the consumer price index for all urban consumers (CPI-U) to interest rates and then to understand that each of the bond’s interest rate payments is built from a $25 bond that is compounded every six months in a rolling fashion based on the start date of your bond.

For example, if you bought a $2,000 I bond in December 2021, the first six interest payments are $12, $11.20, $12, $12, $12 and $12, giving you a total compounded amount of $2,071.20 at the end of six months. This would be the total “on paper” you would have as of June 1, 2022. However, what you would see in your account in June would be $36 less because of the three-month penalty.
—Dave G. from Texas

Individualizing ESG

Comment on “Addressing the Challenges ESG Investors Face,” an interview with Larry Swedroe, in the May 2022 AAII Journal:

Looking through the prism of a socially responsible investing (SRI) professional, I was very pleased with the overall coverage of the field. However, I was concerned with the remarks regarding investors and energy stocks. At several points, Swedroe refers to socially responsible investors “screening out energy companies.” He says that would be a “bad decision.” Left unchallenged, this may cause some confusion among your readers.

SRI does not screen out the entire energy sector. Companies that produce power from wind turbines and solar panels are energy companies. Our clients invest in energy, but it is renewable energy, not oil, coal or gas energy. I suggest that using the term “fossil fuels” in the future would clarify what SRI screens out when it comes to the energy sector.
—Ron F. from California

I immediately distrust any firm or individual’s rating of so-called SRI or environmental, social and governance (ESG) investment strategies. I do not use such ratings in my investment research or stock analysis. I also distrust and resent huge stockholders dictating social policy on “my” companies. BlackRock and CalPERS should stay out of the social responsibility opinion realm. This interview confirms rating inconsistencies, and recent articles and opinions in The Wall Street Journal point out the difficulties of such rating strategies.
—Bill J. from Texas

Missing Robo-Adviser

Comments on “Gauging the Current Robo-Advisers on Features & Returns,” by Ken Schapiro, in the June 2022 AAII Journal:

What’s missing from this list of robo-advisers is one that is tracked and audited by HulbertRatings.com, had performance of 7.5% as of March 31, 2022, for the trailing 12 months and had an annual average return of 19.52% for the trailing three years. That performance of BuySellDoNothing.com compares very favorably with the “equity only” results on a trailing 12-month basis and exceeds the best in this article on a trailing three-year basis.
—Michael D. from California