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Why I Bought My First Series EE Savings Bond

October 14th, 2010 at 10:23 pm

OK baselle, since you asked:

Did something recently that I never thought I would do ... I purchased a Series EE Savings Bond in my Treasury Direct account. Until recently, I've been able to find better options for cash not needed in the short term (such as CDs or High-Yielding MMAs). And although I own TIPS and used to buy Treasury Notes, it has been quite awhile since I bought a Treasury since, to be blunt, the yields suck. And Series EE Bonds always seemed to be just about the worst.

That was then. Welcome to 2010, and the age of ever-shrinking yields on bank accounts.

Last month I was looking for a place to park a bit of cash that I knew we would not need until our retirement years. (Our IRAs would have been my first choice, but they had been maxed out.)

After scouring rates on CDs and MMAs, I was getting frustrated at the low rates I was finding. Not expecting much, but figuring I had nothing to lose, I decided to poke around on the Treasury Direct site.

Found out that Series EE Bonds Savings Bonds purchased through Oct 31 are earning 1.4% interest. Not so good. For some reason I kept reading & I learned some interesting tidbits:

- A Series EE Bond earns interest for 30 years
- You have to hold the bond for at least 1 year
- After 1 year, you can cash out the bond any time
- If you cash it out before you have had it for 5 years, you will pay a penalty of 3 months' interest
- That means that if you hold the bond for 5 years, you can cash it out any time after that for no penalty
- THIS IS WHERE IT GETS INTERESTING: Your bond is guaranteed to double in value in 20 years! (I had to double-read that part to make sure my eyes weren't playing tricks on me.) Based on my calculation, that means that if I hold the bond for 20 years, the US Treasury will add enough value to the bond so that my interest earned equivalent will be 3.5%.
- TO MAKE IT EVEN MORE ATTRACTIVE: Interest income on federal taxes is deferred until the bond is redeemed. (I think state income tax is also deferred, but I'm in a no income tax state so didn't verify that.)

What this means for me is that I'm guaranteed 1.4% (tax deferred) holding the bond for 5 years, and 3.5% (tax deferred) if I hold the bond for 20 years. In 5 years, I'll see where interest rates are and decide if I want to cash the bond in and move the money or continue to hold it.

If anyone else is interested, I recommend going directly to the source and confirming all information on the US Treasury's web page:

And if you have children & are saving for their college education, be sure to read about the tax advantages to using Series EE Savings Bonds to pay for their education. (If I had a newborn & knew I could earn 3.5% for 20 years, probably tax-free, I'd be buying an EE Bond!)

Psst ... Hey Buddy ... Wanna Hear About My Hot Investment?

July 24th, 2008 at 03:39 am

This investment's a guaranteed winner. And best of all, anyone can do it. Car maintenance. (What? You expected me to say I bought tulip bulbs?)

Yesterday I took my Camry in for its 120K mile tune-up. In addition to routine maintenance (oil change, radiator fluid change, tire rotation) there was a long list of things Toyota recommended should be checked out. Based on the lookover results, dirty transmission fluid was flushed and 2 accessory belts were replaced. Total "investment" was $377.

---Knock on wood---

Hopefully my investment will pay off in the form of a car that doesn't breakdown suddenly on the freeway, needing to be towed, causing me to incur unnecessary expenses, and making me miss pay because I can't get to work. And hopefully my investment will pay off in the form of a car that is still going strong at 200K miles (allowing me to keep my money in the bank, earning interest, instead of buying a replacement vehicle).


February 26th, 2008 at 03:06 am

Wanna peek at a boring investor's portfolio? ...

Are you like me? Do you sometimes wonder what is wrong with you because you aren't getting stratospheric returns on your investments? Do you slightly envy those who so confidently pick individual stocks, buy precious metals, and short put options on future Mars travel (yea ... I made that last one up)?

In the past I have been somewhat apologetic about the conservative nature of my investments. But no more apologies.

I am reading "The Number" by Lee Eisenberg. The Number refers to "How much money you need to secure the rest of your life." This book is not so much about creating a formula for determing your Number as it is an exploration of why coming up with The Number is so challening, and why it must be an on-going, lifelong process. It also offers interesting tidbits in to the world of those who sell financial products.

One passage in the book really jumped out at me (from page 129):

"Risk aversion. Overload. Hubris. That these qualities get in so many people's way, that they louse up investment returns, that they screw up the Number, is deeply regrettable, if only because they can be tempered by a trio of reliable, if boring, traits of character: moderation, balance, common sense."

Yes-yes-yes! Validation! Here's to being reliable and boring! My investments have been seriously thought out, they are working for us, and ... well ... they are very very boring, but no longer embarrassing to talk about.

So, for anyone interested, here is a peekaboo in to the portfolio of this very boring investor. [Why do I feel like I'm about to strip naked in a room full of supermodels?]

1. Cash: Cash makes up the single biggest chunk of our portfolio. Our cash is in MMAs and CDs. [In the past we have had T-Bills as well, and we likely will again in the future ... But not right now, because frankly the yields suck at the moment.] We keep much more cash on hand than the average person needs to. These are the reasons cash is essential for us.
- Cash flow for my husband's business. Squeezing off the business cash flow wouldn't exactly be killing a golden goose, but it certainly would be killing a good ol' laying hen. Smile
- Cushy General-Purpose EF ... one year's living expenses plus ... again, more than the average person needs ... because DH is self-employed and has no guaranteed income.
- Cushions in budget categories where irregular expenses crop up: Medical/Dental/Vision (we have a HSA), Auto Maintenance, Pet Care.
- Cash for the purchase (in cash) of our next house
- Cash for the purchase of furnishings once we have purchased above-mentioned house (we sold almost all of our furniture prior to our move).
- Cash for the purchase of our next car (we are currently getting by with one car, and plan to get by with one for as long as we comfortably can. But we know sometime in the not-so-distant future we may feel a strong desire to buy a 2nd.)

2. TIPS (purchased directly from Treasury Direct): A very slender portion of our portfolio, but worth mentioning since they don't fit in either of the other 2 categories. And they are a little pet investment of mine. As with the T-Bills, we are not purchasing any more at the moment because they are just too white-hot popular.

3. Mutual Funds (almost all in the form of tax-deferred investments) ... This is where our boring investment style really shines! We have 3 Vanguard funds, and they are all funds of funds or balanced funds.

Life Stragety Conservative Growth (VSCGX) = 80% of Portfolio (YTD Return = -3.33% / 10 year return = 6.23%)

STAR Fund (VGSTX) = 18% of Portfolio (YTD Return = -4.84% / 10 year return = 7.38%)

Balanced Index Fund (VBINX) = 2% of Portfolio (YTD Return = -4.23% / 10 year return = 6.01%)

BTW, if I had my druthers, we wouldn't have the VBINX fund. However, we needed to keep a very small portion of our investments completely distinguishable from the others for tax-related accounting reasons, so we chose that fund becaue it most closely resembled our chosen funds, VSCGX & VGSTX.

Also, as simple as our choices appear, a ridiculous amount of time went in to making the choices, and it's a somewhat amusing story (which I'll share at another time).


Here's the Morningstar X-Ray breakdown of just our mutual funds (percentages rounded off to nearest whole number, therefore total does not equal 100):
Cash = 8%
US Stocks = 40%
Foreign Stocks = 7%
Bonds = 44%

Lg Cap Stocks: 25% Value / 27% Core / 29% Growth
Mid Cap Stocks: 5% Value / 6% Core / 5% Growth
Sm Cap Stocks: 2% Value / 1% Core / 1% Growth

Bonds: All high credit quality, 85% intermediate-term, 15% long-term

Expense Ratio: 0.28%, compared to expense ratio of a similar hypothetical portfolio of 1.42% [This alone is enough to make you break in to a big ol' grin, isn't it?]


I will be the first to admit that those returns are not one bit sexy; certainly nothing to brag about over on the forums! But I wanted to show that sometimes boring, reliable investments are just fine.

Here are some facts about where we stand:
- Every on-line calculator I can find says that we are on-track or ahead of the game in terms of accumulating what we will need for retirement.
- An analysis prepared for us last year by a CFP, using only our mutual fund investments (not including our cash) showed that we are at 140% of where we ought to be.
- A Monte Carlo analysis that was run for us 1-1/2 years ago showed a 70% success chance of success ... and again, that did not include our cash savings, which presumably (barring any huge business losses) will go in to the retirement funds some day and make our chances of success much higher.

So, maybe being boring isn't so bad after all! I feel pretty good about where we are, and I believe that with continued "moderation, balance, and common sense" we have a pretty good shot at having a secure future. How did we get here?

Rather than looking for the next hot investment, we have focused on:
- Spending less than we earn [This is where everyone has to start. If you don't do this, you are not going to get to your Number. Sorry, it may not be fun, but it's true.]
- Having game, both offense (earning) and defense (keeping big & small spending down, saving, and investing) --- DH is offensive coordinator, and I'm defensive coordinator, but we both play on both sides.
- Running a business
- Sensible investing

Having said all this and having let all of you peek at my boring portfolio, I know I must not rest on my laurels. We have some dreams that don't fit in to the standard "retire at 60 or 65" formulas. I have some ideas about changes I may want to make (such as switching funds from STAR to Conservative Growth), and I need to think about non-tax-deferred mutual fund investing (with part of the cash that we have set aside to buy our house, now that I think it's very likely we'll be spending less than originally planned).

The process continues ...

Asset Allocation / The Smartest Investment Book You'll Ever Read

October 28th, 2007 at 09:16 pm

Awhile back I read the book "The Smartest Investment Book You'll Ever Read" by Daniel Solin. It was a quick and very informative read, and I do recommend it.

In a nutshell, it explains why you should invest in low-cost index mutual funds and stay away from stockbrokers, and why asset allocation is so important. (I heard about this book on the Vanguard Diehards Investment Forum.) I was already a believer in low-cost index mutual fund investing, but this book helped solidify my beliefs and it was a real eye-opener about stockbrokers ... It offered the insider scoop on the tricks some brokers use to make their clients think they are smarter than they really are.

At the back of the book was a really interesting questionaire to help you determine your ideal asset allocation. It was very, very different from any other asset allocation quizzes I had done.

The ones I had done before were really simplistic: Age, years to retirement, and risk tolerence (I'm sure you've all done those things on-line). But I always felt those quizzes missed so much. I'd find myself asking: "Wait! What about the fact that our expenses are so low and we save a huge chunk of our net each year? Doesn't that count for something?!?" Intuitively I always felt that the stock/bond allocations spewed out were riskier than what we really needed. [60% stock, 40% bond was the most conservative I ever got with those simple on-line tools.]

Well, at the back of Mr. Solin's book there was a detailed but easy-to-follow questionaire that I completed, and it came up with a result of 10-30% stocks and 70-90% bonds as our ideal asset allocation. Well, you could have knocked me over with a feather, and I do wonder if that may be a bit too conservative. But it definitely gave me something to think about and helped validate what I had been feeling intuitively. [In case you're wondering, Mr. Solin does recommend up to 90% stocks for some people, so he's definitely not anti-stock. It's just that his formula takes so many variables in to account, and in some cases he recommends something fairly risky, and in some cases like mine & DH's something extremely conservative.]

I hesitated to blog about this before because I knew you all would want to know what the formula was, and it's too complicated for me to explain and I didn't want to in any way infringe on Mr. Solin's intellectual property.

Then, our friend Broken Arrow posted a question on Asset Allocation on the forums, and that got me thinking about this book again, so I started looking around on-line, and lo & behold, I found the questionaire published!!! So, you all can take it yourselves and see what numbers you come up with.

Here is the link, thanks to baselle teaching me how to make one:

Text is and Link is

Feel free to share what numbers you get and what you think of the results.

Don't Let Anyone Else Tell You How To Invest (or, Dear Vanguard, I Love You!)

August 12th, 2007 at 04:37 pm

About a year ago, my DH and I decided to take a "big picture" look at our investments, and as part of that process we consulted with both Vanguard & another company that I will refer to as "TRP" Smile hehe

We explained our situation and why our risk tolerance is lower than what the "Average Joe's" might be, and what our target asset allocation is.

Vanguard took our information and gave us a very fine recommended portfolio based completely on what we told them.

TRP was a bit different. They asked us "Where do you think high-yield bonds fit in your investment strategy?" to which I repied "You mean junk bonds, right? They just aren't for us. We're not interested at all." They then proceeded to explain how their company's philosophy was that "high-yield" bonds had a place in every investor's portfolio, and then asked if they could go ahead and send us some information on them. I was starting to think "What part of 'no' don't you understand?" but just to keep the conversation moving along I told them fine, they could send the information. You can guess what I did with that info when it arrived --- straight to the recycling bin without a second glance!

After those conversations, DH & I decided that Vanguard is the company for us! It wasn't that TRP was overly pushy or sleazy, and I'm sure they do a bang-up job for lots of folks, but it was like they didn't really listen to what we had to say and tried to squeeze us in to a "one size fits all" plan. Vanguard on the other hand listened to us and believed us when we told them what we wanted!

This morning I was reading in the Business section of the paper about how investments in high-yield bonds are really taking a hit. I'm so glad we stayed true to ourselves and stuck with our conservative investments. In the end, we are the ones who have to live with the consequences. We've been sleeping just fine at night.

Don't ever let anyone else tell you how to invest! Listen to people's opinions and advice, certainly, but at the end of the day no one knows better than you what is right for you.

Buying a TIPS from Treasury Direct - Part 3

July 17th, 2007 at 03:46 pm

Yesterday, funds were automatically withdrawn from my checking account for my TIPS purchase. It was recorded by my bank overnight, so I could see the amount withdrawn this morning.

The amount withdrawn was $2,968.47 for my $3,000 TIPS, based on a purchase price of $98.922415 per $100. I paid 20-cents more than what I had calculated based on the published auction results, and I don't exactly know why.

Coincidentally, I also received interest payments yesterday from the US Treasury for TIPS I had purchased in the past. I get interest payments automatically deposited to my checking account every 6 months. So, on the same day I had money coming from and going to the US Treasury. [It was pure coincidence, and I don't think that has ever happened before.]

If I were retired or near retirement age, I think I would be putting a much larger percentage of my money in TIPS, as a way to keep my principal secure and make sure my money earned at a rate a bit ahead of inflation. I read somewhere that John Bogle, the founder of Vanguard, has moved a larger percentage of his portfolio to TIPS as he has gotten older.

Regarding short-term US Treasuries (T-Bills), the interest rate from yesterday's auction was the highest in 3 months:
6-month T-Bill (Rate 4.865% / Yield 5.071%)
3 month T-Bill (Rate 4.840% / Yield 4.982%)
They're not quite up there with the best MMAs or short-term CDs yet, but they are getting close. It might be time to start thinking about T-Bills again ...

Buying a TIPS from Treasury Direct - Part Two

July 12th, 2007 at 10:51 pm

The US Treasury's 10-year TIPS Auction was today and these are the results:

Interest Rate = 2.625%
Yield = 2.749%
Price per $100 = $98.942199

So, my $3,000 TIPS should cost me $2,968.27. I will be paid interest every 6 months, and my principal will be adjusted at the rate of inflation, which means I'll be yielding 2.749% PLUS the inflation adjustments. So hypothetically, if inflation were to hold steady at 3%, my yield would be 5.749%, and of course if inflation goes through the roof my principal would grow in line with inflation. I think that's not too shabby. [Actually, I am really happy with the auction results.]

Hopefully this explains why I like TIPS as an alternative to long-term CDs.

I'll report again when the funds for my TIPS purchase are automatically deducted from my checking account.

Buying a TIPS from Treasury Direct - Part One

July 9th, 2007 at 06:07 pm

This is for anyone who may be interested in purchasing US Treasuries (bills, notes, etc) directly from the US Treasury, but doesn't know how to do it. Specifically, I will explain the process I go through as I purchase a TIPS (Treasury Inflation-Protected Security) at this week's auction.

Buying Treasuries directly is very easy. There is no need to go through a broker or pay any fees. All you have to do is set up an account with Treasury Direct. I have an on-line account with Treasury Direct that is linked to my primary checking account. That means that any time I purchase a Treasury the funds are automatically taken out of my checking account, and any funds I receive (interest payments and proceeds from matured Treasuries) is automatically deposited to my account. I like having the accounts linked because there is no "lag time" while funds are being moved.

In the past I have purchased T-Bills through Treasury Direct, but I haven't done that for awhile because the interest rates have not been competitive with what I can earn on a MMA or short-term CD. However, I do keep my eye on the T-Bill rates, and no doubt I will buy more in the future.

What I am buying this week is a TIPS: Treasury Inflation-Protected Security.
The minimum investment for a TIPS is $1,000. I will be buying a $3,000 TIPS.

TIPS are currently available in 5-, 10-, or 20-year terms. I will be buying a 10-year TIPS.

Unlike T-Bills which are sold as often as weekly, TIPS are sold infrequently. TIPS are sold either Annually (5- and 20-year terms) or Semi-Annually (10-year term). They are also re-opened Annually or Semi-Annually. That means that if you want to buy a 5- or 20-year TIPS, you only get 2 chances a year. And if you want to buy a 1o-year TIPS, you only get 4 chances a year. If they are something you are interested in, you will definitely want to check out the US Treasury auction schedule and note the dates on your calendar.

The 10-year TIPS I am purchasing was announced today (tho' the announcement had been tentatively scheduled long ago), and the actual auction will take place on Thursday. The TIPS I am buying will be issued on July 16th (because the 15th is a Sunday), and will mature on July 15, 2017.

TIPS pay interest every 6 months, and the principal amount is adjusted for inflation (or deflation). The interest you earn is on the inflation-adjusted amount, so as long as there is inflation your interest payments as well as your principal continue to go up.

This is why I like TIPS:
- They are an extremely safe investment, fully backed by the US government.
- They are a good hedge against inflation. I prefer TIPS to long-term CDs because I know that I'll always be getting "inflation + alpha." I do not have to worry about inflation eroding my principal.
- Once you have a Treasury Direct account set up, they are a breeze to buy.

These are the drawbacks to TIPS:
- They are pretty conservative investments. If you are looking for gangbuster returns, they aren't for you.
- They make tax time just a wee bit more complicated because you get a form "1099-OID" in addition to a "1099-INT." The 1099-OID is for the inflation-adjustment you receive on your principal.
- You have to pay taxes on not only your interest but also the inflation-adjustment to your principal in the year it is received. What that means, quite simply, is that you are paying taxes on money you haven't even received yet.
- The government's formula for inflation may or may not accurately reflect the "real rate of inflation" you experience in your life.

These are the steps I went through to purchase the TIPS:

1. I checked the auction schedule and made a note on my calendar that a TIPS auction announcement was scheduled for today.

2. Once the auction announcement was posted at the Treasury Direct web site this morning, I logged on to my Treasury Direct account and entered a buy order for a $3,000 10-year TIPS. That means that I now have a non-competitive bid entered for Thursday's auction.

3. I went to on-line banking and transferred $3K from my MMA to my checking account. I could have waited a few days to do that, but I didn't want to risk forgetting or being unable to do that and being charged an overdraft fee. [Of course, this means I lose a bit of interest income because my checking account pays less than my MMA.]

Easy as pie.

Because my bid is non-competitive, I won't know what the interest rate will be until the auction is completed. Once the auction results are posted, I'll blog again and let you know how it went.

Want to learn more?

Treasury Direct web site:

To learn more about TIPS in general, start here:

Upcoming auctions are announced here:

Blogging is Better than Pulling out your Hair

July 7th, 2007 at 11:36 pm

Arrrgh! Been trying to figure out how to reconfigure our mutual fund investments and I feel like pulling out my hair! DH insisted we make some changes, and I agreed.

At the end of every month when we look at our assets and net worth, if one fund is down even just a little bit DH always says something along the lines of "Oh that's not good --- We should sell that fund." [He just can't stand to see anything go down. He's even more risk-averse than I am when it comes to investing, which is interesting considering what a risk-taker he is with his business.] We have the same old discussion over and over again about asset allocation, how the overall performance of the portfolio is more important than looking at individual funds, etc, etc, and then he agrees to keep things as they are. But the same thing comes up every month and it's just like a tired old broken record. End of June ... same discussion ... but he was more insistent. And I frankly have been thinking that it's time to rebalance because of how well our International Stock Fund has been doing.

So I decided, what the heck, let's just reconfigure the whole portfolio, not only for rebalancing but also to give DH more peace of mind. But it can be such a difficult decision to make, because you never know if you are making the right decision.

[DH is very much involved in the decision-making process, but I do most of the researching, reading of prospectuses, running Morningstar X-Rays, etc. He's more of a big picture guy and I am more detail-oriented, which makes us a good team, but it does mean I end up doing the time-consuming stuff. Also, DH speaks English as a second language so it makes sense that I do the heavy reading.]

Well, I don't know if this is the right decision or not, and it may just be lazy or cowardly, but I decided (and DH agreed) that we are going to move all of our Tax-Deferred Savings (Keoghs & various types of IRAs) to a "fund of funds," the Vanguard STAR Fund. It's a mix of 8 stock funds (domestic & international), 2 bond funds, and 1 short-term investment fund. Hopefully it will be up EVERY month from now on, even if just a wee bit. Smile

As far as the money that is in our non-tax-deferred mutual fund account, I wanted to split that between the STAR Fund and a Money Market Fund, but DH insisted that it all go to a Money Market Fund. He actually quoted CNN Money ... He said "The expert there says when you are getting ready to buy a house your money should be in completely safe investments!" Which I reminded him is completely irrelevant. What the CNN Money expert is talking about is the money you are planning to use to buy the house!!! We are talking about money that I consider to be part of our retirement savings. [The money that is supposedly to buy the house is tucked away in FDIC-insured deposit accounts.] Finally we agreed to do what DH wanted, put it in the MMF (sigh), and then revisit the whole thing again after we have bought a house.

Why, oh why, am I getting a sneaking suspicion that DH is starting to think about buying a more expensive house than what we had originally agreed on ... ??? Oh well, that will be something to blog about in the future, after we have moved to Texas.

But in closing I'll just say "Bless my DH" because he did put everything in to perspective when he reminded me that not everyone has the "problem" of trying to decide (and come to agreement as a couple) where to put their money because they have no money to put anywhere. As usual, he's right.