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.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
