Video: A financial adviser/tax specialist explains I Bonds

Your financial adviser should know about I Bonds and be willing to explain their obvious benefits and potential pitfalls.

Tipswatch.com

I consider U.S. Series I Savings Bonds to be among the simplest of all investments. They are savings bonds, after all, issued by the U.S. Treasury and can be purchased in amounts as small as $25. They earn tax-deferred interest and can be held for one year up to 30 years. They can never go down in value.

What could be simpler? Well …

In reality, I Bonds can have some complexities and finding answers to esoteric questions can be difficult. As I Bonds became an investing rage this year, I found myself Googling for answers to questions I had never heard before, and I’ve been writing about I Bonds for 11 years.

Here is a video from Andy Panko, founder of Tenon Financial based in Metuchen, N.J. He is a Certified Financial Planner and an enrolled IRS agent with a specialty in tax advice. Here is how he describes his financial services, for which he charges a flat annual fee ($9,600 for a couple, $8.400 for an individual):

We focus on helping you make the most of your retirement resources in a tax-efficient way. Our specialty is retirement income planning, aka decumulation planning…how to best live off your nest egg and other sources of retirement income. …

Unlike many advisors, our ongoing fee is not tied solely to the amount of your investable assets. The size of your investment accounts is generally a poor gauge of the complexity of your financial life and therefore a poor gauge of the amount of time and resources necessary to provide you proper planning and advice.

I discovered Andy when I came across his Facebook site, Taxes in Retirement, in its early days. The site now has 28,000 members — really active members, and Andy frequently jumps in to answer questions. He also posts frequent YouTube videos on financial topics and has a podcast, Retirement Planning Education.

I like that Andy tells you what he knows, and what he doesn’t know. Here is his discussion on I Bonds:

This video is actually a condensed version of Andy’s podcast, a 30-minute discussion on I Bonds. Here is a direct link to that more detailed version.

By the way, I have no connection to Andy Panko or Tenon Financial and I am sharing this simply because it demonstrates that a financial planner/tax adviser can — and should — understand I Bonds. I appreciate that Andy has taken the time to learn about I Bonds and talk about them with his clients, and with the rest of the world on Facebook, YouTube and podcast services.

Professor Zvi Bodie, who began promoting the I Bond Manifesto last year, came up with an “I-Bond Test of Trustworthiness” this month, wonderful in its simplicity:

Who can you trust for good financial advice and competent management of your personal wealth? Many of us rely on lawyers, accountants, wealth managers, and financial planners. There are two qualities that we ought to look for in any of these financial professionals: integrity and knowledge. Alone, neither of these is sufficient to justify our trust. Asking a simple question provides a quick test of both components of trustworthiness:

What do you think about I Bonds?

If the answer is “What are I Bonds?” then the professional has failed the knowledge part of the test. I Bonds have been in existence since 1998, and at times have clearly dominated all other personal investment opportunities for both the short run and the long run.

The correct answer is “You ought to buy I Bonds up to the legal limit because they are a safe, tax-advantaged liquid asset.”

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Feel free to post comments or questions below. If it is your first-ever comment, it will have to wait for moderation. After that, your comments will automatically appear.

David Enna is a financial journalist, not a financial adviser. He is not selling or profiting from any investment discussed. The investments he discusses can purchased through the Treasury or other providers without fees, commissions or carrying charges. Please do your own research before investing.

About Tipswatch

Author of Tipswatch.com blog, David Enna is a long-time journalist based in Charlotte, N.C. A past winner of two Society of American Business Editors and Writers awards, he has written on real estate and home finance, and was a founding editor of The Charlotte Observer's website.
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6 Responses to Video: A financial adviser/tax specialist explains I Bonds

  1. Scott says:

    “…I am sharing this simply because it demonstrates that a financial planner/tax adviser can — and should — understand I Bonds.”

    This…very much. I tried getting my dad into I Bonds recently. He’s ~70, retired, and an excellent fit for maxing I Bonds both last year and this year…probably most years honestly. He said he’d look into them–which actually meant asking his financial advisor (part of a household name financial firm). My dad told me that his financial advisor had never even heard of I Bonds.

    I told my dad that the financial advisor was profiting off of him and his money and having my dad’s money go to I Bonds wasn’t in the financial advisor’s best interest. Also commented that a financial advisor who truthfully didn’t know what I Bonds were in Apr 2022 was incompetent. I honestly feel that a not-insignificant portion of Americans don’t know about this currently stellar product because it is of no benefit to their financial advisors!

    Relatedly, my sister’s job entails answering questions about specialized retirement plans their company administers. Interestingly, she’s gotten calls from customers the last few months upset that their company doesn’t offer anything like I Bonds and want to know why. How does one answer a question like that? Somehow, I think saying “that product is crazy high above market rate and no company could profitably offer it” would not go over well with her bosses!

    • Tipswatch says:

      Excellent points. I definitely agree that financial advisers charging a fee for assets under management have no “interest” in promoting I Bonds, since they can’t make money on them. But if they are fiduciaries, they should know about I Bonds and suggest them as an alternative for safe near-cash accounts.

      I Bonds are a financial relic. The Treasury wouldn’t create a product like them today, after a decade dominated by negative real interest rates. It’s great that they remain intact (probably thanks to the $10,000 purchase cap, which weeds out quick-money investors.)

  2. Len says:

    Well at least professor Bodie included the caveat ” at times” in his declaration. But in the long run? Only if the CPI index is an accurate measure of inflation. I’ll just refer anyone interested in a contrary opinion to Bonds Are Not Forever by Simon Lack CFA. The chapter on inflation is most germane.

    • Tipswatch says:

      My personal opinion is that because of the purchase cap, buying I Bonds for the long run makes sense, even when the fixed rate is 0.0%. You can build up a decent stockpile of inflation-protected cash to prepare for times like this … very low interest rates on CDs and nominal Treasurys, combined with unexpectedly high inflation. I Bonds are safe, liquid after one year and right now offer returns about 5x to 10x similarly safe nominal investments.

      When you invest in I Bonds and TIPS, you are agreeing to accept a return that tracks official U.S. inflation. It is what it is. Your personal inflation rate might be higher or lower.

      • Len says:

        The critique in the reference mentioned isn’t contingent on the vagaries of anyone’s personal experience of inflation.

        If we are buy and hold investors, TIPS with 20 years to maturity were yielding .4 % last I looked. Quite possibly they will be ‘underwater’ until maturity of course.

        • Don says:

          Last time I looked the Ibonds I bought 20yrs ago tripled! You can get .6 APR in an AMEX savings account and pay taxes too!

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