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Hedging Inflation in the US. Series I Bonds and the CPI currently at 9.62%

What are Series I Bonds? and what is current rate?

I Series Bonds are savings bonds issued by the US Government that earn interest based on combining a fixed rate and an inflation rate (CPI index).  Currently the fixed rate is 0.0%, However the inflation rate is 9.62%.  More details can be found here: https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm

5 Important things to know about Series I Bonds?

  1. can't be purchased through a broker, must be purchased from https://www.treasurydirect.gov (the user experience is very poor as website is very old)

  2. can only by $10,000 of bonds per year (but can buy as gifts for others and minors)

  3. the interest rate is set every 6 months for the next 6 months ( May and October)

  4. the bond matures in 30 years, but you can redeem after 5 years without any penalty (the penalty if before 5 years is the last 3 months of interest

  5. Federally taxable, but exempt from state and local income tax

Your personal inflation may be different

Although we see CPI inflation at 9.62%, this may not be your actual inflation rate as it is from a sample of consumer goods across a broad set of consumers.  Your rate may be much higher (example a booming town real estate could be moving up more than the average) or much lower (example, if you own your house in California, property taxes don't go up and so your housing increase costs will be significantly less than a renter in a booming town).

Additional way to Hedge

If you have more than $10,000 that you want to protect against inflation, you can invest in Real Estate (physical property or REITs) because housing is around 30% of Consumer Annual Expenditures (the largest category) making it a reasonable hedge.


Related Posts:

REIT Investing Basics - https://www.unpackinvesting.com/2022/04/reit-investing.html

How much does the average American spend - https://www.unpackinvesting.com/2021/08/spending-too-much-or-too-little_0645791283.html

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