No matter where you go these days, the bank, supermarket, or daycare to pick up the kids the number one topic of conversation in our nation is rampant inflation! This is also a major problem across the world.
As of the writing of this article, the G7 leaders are meeting in Bavaria, Germany to discuss “global inflation” and the war in Ukraine. The G7 leaders are Joseph Biden (USA), Mario Draghi (Italy), Boris Johnson (United Kingdom), Fumio Kishida (Japan), Emmanuel Macron (France), Olaf Scholz (Germany), and Justin Trudeau (Canada). They represent 7 of the richest economies in the world, which are all being affected by skyrocketing inflation.
As per Wikipedia, “Inflation is a general increase in the prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money.”
My regular “Financial Wave” readers will remember that 2 weeks ago I covered “Inflation and Shrinkflation.” Shrinkflation is charging the same price for a smaller amount of goods. A good example of this is Gatorade phasing out their 32-ounce bottles replacing them with a taller and thinner 28-ounce bottle while trying to make it look the same size.
If you are not a business owner, the odds are good that you are on a fixed income or a fixed salary. This means that the purchasing power of your money is eroding. This is not a revelation, as you can see the noticeable difference every time you run errands at the supermarket, convenience store or at the gas pump!
The 2021 inflation rate was 7%. The inflation rate for the 2nd quarter of 2022 is expected to be 8.4%! The question for advisors is, “Is there anything we can do about this?”
My answer is, yes, we can suggest investing in I-Bonds, also known as Inflation Bonds, backed by the U. S. Government! The letter I stands for “Inflation Bonds,” which are specifically designed to fight inflation during these times.
You might not hear from your advisors about this because there are no commissions or fees to be made from selling I-bonds!
My Lucky 7 Features and Benefits of I-Bonds:
One of the reasons why I know so much about Inflation Bonds is because I purchased a significant amount of I-Bonds myself from the U.S. Treasury direct internet account this April. This was after they announced the May 1st rates would be 7.11% from May 1st, 2022 to November 1st, 2022.
A good advisor will ALWAYS look at the pros and cons when evaluating investment alternatives. If you are looking to keep your I-Bond for over 5 years, there is NO drawback regarding liquidity.
To explain, I will compare the withdrawal penalties/liquidity of I-Bonds vs. CDs, also known as Certificates of Deposit or Certificates of Disappointment in some circles.
Year I-Bonds Bank 7-Year CD
1 Zero withdrawal 1-year interest penalty
2-5 3 mth interest penalty 1-year interest penalty
6-7 100% with no penalty 1-year interest penalty
As you can see, as far as liquidity is concerned, I-Bonds compare favorably with bank CDs. In case you were wondering, the current I-Bond interest rate is 9.62% which is guaranteed until the end of October 2022, before the rate changes again this November 1st!
It is important to strategize with your advisors during these uncertain times of rampant inflation and a choppy stock market. There are loopholes to being able to contribute more than that $10,000 per year from the treasury. If you are interested in learning more, feel free to reach out to me at [email protected].