Picking up Nickels

Friday, April 17, 2015

March CPI-U numbers released: Pass on I Bonds until November 2015

The U.S. Bureau of Labor Statistics released the March 2015 Consumer Price Index (CPI-U) inflation data this morning, which increased by 0.60% last month.

As always, now (along with the release of the September CPI-U) is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for April 2015 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from September 2014 (238.031) and March 2015 (236.119) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2015 issue I Bonds:

That means these bonds would earn a rate of 1.48% (using 0% fixed & 1.48 variable) for the first 6 months and 0% (using 0% fixed & -1.60% variable) for the second 6 months since the composite rate can never fall below zero. Based on this, April 2015 issue I Bonds are not a very competitive investment when compared to something like the 12 month CD @ 1.30% APY currently being offered by Connexus Credit Union. Similarly, May 2015 issue I Bonds are even less attractive since they will have a 0% composite rate for the first 6 months of ownership.

Simply put, I believe the smart money is on deferring any I Bond purchases until the next rate reset in November 2015 to avoid six months of 0% interest. Since the poor inflation number was primarily driven by oil prices falling to about half of the $100 level they were at a year ago, I expect that the next inflation adjustment will be a more typical (and attractive) number for I Bond buyers.

Monday, April 13, 2015

April 2015 Financial Asset Roundup

Here are my current financial assets as of the market close on April 10th, 2015:

Asset Mar
Checking 1,309 2,131 822
Money Market 52,851 66,492 13,641
Savings Bonds 93,507 94,826 1,319
Treasury Bills 0 0 0
CDs 49,966 35,836 -14,130
Brokerage 132,175 136,752 4,577
401k 132,922 142,051 9,129
Roth IRA 101,211 105,070 3,859
SEP IRA 497,510 512,800 15,290
529 Savings 118,643 122,183 3,540

Total Assets $1,180,094 $1,218,141 $38,047

The S&P 500 is up 2.83% since the last update and once again is close to all time highs:

(chart courtesy of yahoo.com)

On the jobs front, the unemployment rate for March stayed flat at 5.5% with "only" 126,000 new jobs created (apparently a disappointing number). Oil prices rise slightly from about $48 to almost $53.

On the financial front, my assets have hit an all time high once again, rising above the previous high from March along with the S&P 500. However, I unfortunately had to bid adieu to my remaining Penfed 3.5% APY 5 year CD from March 2010 without having a good landing spot for the newly freed up cash. I also took an equity distribution from my S Corp and used a portion of it to make another mortgage prepayment due to a lack of better options for the money. Finally, I'm waiting for the March CPI-U numbers due for release next week to help evaluate a potential Series I Savings Bond purchase. Right now, I'd say that holding off on an I Bond purchase until November is looking like the most logical move, but we'll see...

As for the non-financial, I am finally done with my 2014 personal tax returns! The state has already cashed my check and the Feds have already sent me my cash/paper I Bond refund. One odd thing of note is that the Treasury sent my I Bonds in NINE separate envelopes! With decisions like that, it's no wonder that the US Savings Bond program has been so expensive to administer!