Aleta-
I bonds are tricky. There is an interest component (as sweeps mentioned) and an inflation component (as the original post mentioned). Both factor into the return, but you only know the interest component going in.
I have read real returns on I bonds are lower than treasuries, but have not seen any reputable source (like smartmoney) take a position on this one way or other.
TIPs and I bonds also have different rules than regular bonds- taxes, purchase amounts and redemption rules.
There are I bonds- which is what this thread is about, and TIPS (Treausry Inflation Protected Securities). TIPs and I-bonds are different, not sure how.
Part of my retirement plan is to own a bond indexed to inflation for part of cash allocation. Not sure how to do this, because I think a mutual fund holding these securities would not show same behavior as holding the security itself to maturity.
For example, I think there is a rule with either TIPS or I-bonds where they are only sold at 10 year maturities. So maybe the holdings I need to create are a 10 year ladder of TIPs- the question then becomes how do I use this within my asset allocation and then go from there.
I have about 15-25 years to figure that answer out.
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