Investment

This Rock-Solid Investment Will Make Wall Street Pros Jealous – Motley Fool

Published

5 years ago

March 11, 2020

The stock market has plunged sharply in the past few weeks, with the Dow Jones Industrials (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) on the verge of falling into their first official bear market since the financial crisis in 2008. Many investors are suffering, seeing much of the gains they’ve enjoyed over the past decade go up in smoke. They’re also looking for ways to protect some of their money from further stock market declines, especially given the uncertainty surrounding events like the Covid-19 outbreak and the price war among oil-producing companies worldwide.

There’s one choice that many investors don’t even see as a real investment, instead being a favorite gift for grandparents to give to young children to help them with their financial futures. Series I savings bonds aren’t going to make you rich, but they will preserve your wealth — and they’ll do so in a way that professionals on Wall Street can’t match right now.

Image source: Getty Images.

What are Series I savings bonds?

The U.S. Treasury issues savings bonds, backing them with the full faith and credit of the federal government. That makes them comparable to Treasury bonds as having no real risk of default.

Savings bonds come in different series, and Series I savings bonds — also known as I bonds — have particularly interesting features. I bonds earn returns based on two things: a fixed interest rate plus changes in the Consumer Price Index. Currently, I bonds have a fixed rate of 0.2%. However, with the CPI having risen by slightly more than 1% over the most recent six-month measuring period, I bonds issued through April will carry an initial total interest rate of 2.22%.

That’s not a huge return, but take a look at how it compares to what Wall Street pros can buy:

Short-term Treasuries with maturities of five years or less are all yielding less than 0.5%.
Even yields on 10-year and 30-year Treasuries fell to rock-bottom levels earlier this week, with 10-year Treasuries falling to 0.3% and 30-years briefly hitting 0.7%.
All of the inflation-indexed securities that institutional investors can buy currently feature negative real interest rates. For instance, 10-year Treasury Inflation Protected Securities currently have an effective yield of -0.4%. That makes the positive 0.2% yield on I bonds look generous by comparison.

A special deal for small investors

The reason Wall Street’s finest will be jealous of you is that I bonds aren’t available to institutional investors. There’s a $10,000 per person annual limit on purchasing I bonds as well, making them best suited for small investors with modest savings.

It’s important to understand that I bonds are designed for long-term investors. You can’t cash them in until a year has passed, and if you cash them in before five years, then you’ll have to pay a penalty of three months of interest. That makes I bonds more like long-maturity bonds or five-year CDs than a savings account.

I bonds also carry some tax advantages over Treasury bonds and most other fixed-income investments. Interest is free of state income tax, and you don’t have to pay tax on accrued income until you cash in the savings bonds. For certain purposes, such as paying educational expenses, interest income on I bonds can be tax-free federally as well for some taxpayers.

Perhaps most importantly, I bonds will never drop in value. Even if the CPI went negative and there was extensive deflation, I bonds will never see their interest rate fall below 0%. That might not sound like a big deal, but in an environment in which more and more institutional bond investors are accepting negative interest rates in exchange for safety, I bonds look attractive.

Take a look at I bonds

I bonds are never going to be a replacement for stocks, because the growth potential of stocks is so much greater than what I bonds will ever pay. For those looking at adding bond exposure to their portfolios in order to improve their asset allocations , however, I bonds have big advantages over most other fixed-income alternatives.

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Investment

Tesla shares soar more than 14% as Trump win is seen boosting Elon Musk’s electric vehicle company

Published

1 week ago

November 6, 2024

Anne Joseph

NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.

Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.

“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”

Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.

Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.

Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.

Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.

In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.

The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.

And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.

Tesla began selling the software, which is called “Full Self-Driving,” nine years ago. But there are doubts about its reliability.

The stock is now showing a 16.1% gain for the year after rising the past two days.

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Investment

S&P/TSX composite up more than 100 points, U.S. stock markets mixed

Published

4 weeks ago

October 16, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.

The S&P/TSX composite index was up 103.40 points at 24,542.48.

In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.

The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.

The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.

The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.

This report by The Canadian Press was first published Oct. 16, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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Economy

S&P/TSX up more than 200 points, U.S. markets also higher

Published

1 month ago

October 11, 2024

Anne Joseph

TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.

The S&P/TSX composite index was up 205.86 points at 24,508.12.

In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.

The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.

The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.

The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.

This report by The Canadian Press was first published Oct. 11, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

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