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IRA vs. Savings Bonds - Cost/Benefit?

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    IRA vs. Savings Bonds - Cost/Benefit?

    As an American living overseas I take the FEIE which means that I cannot contribute to my IRA. For years my accountant has advised me to take the FEIE and forget about contributing to my IRA and use the money for other investments, which I have done. I have stocks mostly. However, as I am getting to the point of no return for some types of investments due to my age I have stopped contributing so much to stocks and have started putting extra cash in US savings bonds. I love EE bonds as they double it in 20 years. I know the rate of return is not that great, but it is quite a safe investment. My question is this... How do I determine or is there a calculator I can use to figure out what the cost/benefit is of both IRA vs. Savings bonds returns? This is a difficult question I think, but would like to see if anyone has a way of calculating it? I am worried that the result would have been better to contribute to my IRA rather than to bonds, but contributing to an IRA at this point as I am over 40 would probably not be so beneficial.

    I want to answer this question now because I am sure someone will ask. Why don't I invest where I live, because there are no decent financial products where I live and none of which can be trusted. Enough said.

    #2
    So at the moment, you're kind of talking apples & oranges, and I frankly can't follow what the question is that you're asking... Bonds are a specific type of investment, IRAs are a type of account which holds a variety of investments, but it's not an investment in and of itself. You can't compare the returns of anything against an IRA, unless you specify what investments the IRA is holding.

    I'm a fat kid at heart, so I'll explain it thus:
    - Stocks, bonds, real estate, precious metals, cash, etc. are all investments. Investments are like cookies. There's oatmeal cookies, peanut butter cookies, chocolate chip, sugar cookies, etc.
    - An IRA, 401k, brokerage, etc. are all different types of accounts. Accounts are like cookie jars.
    - You can put any variety of cookies (investments) into any variety of cookie jar (account).
    "Praestantia per minutus" ... "Acta non verba"

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      #3
      There's a great book called The Simple Path to Wealth that talks about both. My own personal investments are gold coins and index funds. You should look into many different avenues and then decide what is best for you.
      Last edited by disneysteve; 02-05-2019, 04:59 AM. Reason: link removed

      Comment


        #4
        Originally posted by jeffmem View Post
        As an American living overseas I take the FEIE which means that I cannot contribute to my IRA.
        I really don't understand what you're asking. You stated right off the bat that you can't contribute to your IRA so why does it matter if the IRA is the better choice?

        As kork said, an IRA is just a type of account, a basket of sorts that can hold a wide variety of investments including stocks, bonds, mutual funds, ETFs, and more. You mention that you're over 40 so you're still quite young as far as retirement investing is concerned. Stocks should likely still be the biggest piece of your asset allocation. If you can't do that in an IRA because of your foreign residency, them you could do it through mutual funds.
        Steve

        * Despite the high cost of living, it remains very popular.
        * Why should I pay for my daughter's education when she already knows everything?
        * There are no shortcuts to anywhere worth going.

        Comment


          #5
          I could potentially contribute to my IRA if I wanted to, but that would mean not taking the FEIE.

          I can see that for this group asking this question is probably not the right place. For you it is an account, for me overseas it would be a type of investment due to the nature of how taxes and things work with the US government, and you guys clearly do not understand that. E.G. investing in mutual funds as an American abroad are now limited in scope due to SEC rules. Again, I don't expect you guys to understand all this, but it is not as clear cut as you think it is.

          I realize it is an account that you can use to invest and defer taxes, etc. And I realized about 10 years ago that I could actually invest those funds which are in the account.

          Stocks are the biggest piece of my investment, but I am starting to defer some new money to bonds.

          So, ok, I withdraw my question... Instead... I have 2k in my IRA account that I can invest. What would you recommend doing with it? Specifically for that amount what kinds of stocks should I be looking at? I am guessing something maybe with a dividend? For the little amount I would like to have a rate of return every year, something stable, but growth. I could pick any number of stocks that I already own and buy it, but as this is for IRA, I think maybe there might be a better choice? I don't know, just thinking out loud...

          Comment


            #6
            Originally posted by jeffmem View Post
            For you it is an account, for me overseas it would be a type of investment due to the nature of how taxes and things work with the US government

            So, ok, I withdraw my question... Instead... I have 2k in my IRA account that I can invest. What would you recommend doing with it?
            How is the money in your IRA currently invested? And who holds that account? Is it with a bank, a brokerage, a mutual fund company?
            Steve

            * Despite the high cost of living, it remains very popular.
            * Why should I pay for my daughter's education when she already knows everything?
            * There are no shortcuts to anywhere worth going.

            Comment


              #7
              Originally posted by disneysteve View Post

              How is the money in your IRA currently invested? And who holds that account? Is it with a bank, a brokerage, a mutual fund company?
              The money is sitting in TDAmeritrade. It has not been invested. And note that it is a traditional IRA.
              Last edited by jeffmem; 02-05-2019, 08:45 AM.

              Comment


                #8
                We really need more info to answer your question.

                Do you have an asset allocation plan? In other words, how much of your portfolio you want in stocks, bonds, and cash? You mention owning some stocks and the savings bonds already. If you could give more details about your holdings that would help a lot in answer your question.

                Obviously, your IRA is a long-term investment if you are in your 40s. You won't be touching that money for 20+ years, so investing in stocks there makes sense. I would go for a low cost index fund or fee-free ETF if TD offers them.

                I am not a proponent of picking individual stocks.
                Steve

                * Despite the high cost of living, it remains very popular.
                * Why should I pay for my daughter's education when she already knows everything?
                * There are no shortcuts to anywhere worth going.

                Comment


                  #9
                  Originally posted by disneysteve View Post
                  We really need more info to answer your question.

                  Do you have an asset allocation plan? In other words, how much of your portfolio you want in stocks, bonds, and cash? You mention owning some stocks and the savings bonds already. If you could give more details about your holdings that would help a lot in answer your question.

                  Obviously, your IRA is a long-term investment if you are in your 40s. You won't be touching that money for 20+ years, so investing in stocks there makes sense. I would go for a low cost index fund or fee-free ETF if TD offers them.

                  I am not a proponent of picking individual stocks.
                  Could you recommend a few index funds that might work for that small amount of money?

                  I do not have a plan per sa. I was attempting to use the new life model, 80% stocks and 20% bonds. I am not sure if this is a good/bad way of thinking about it. In another few years I may wish to increase bond holdings to 25% of total assets outside of cash. So here are my numbers right now.

                  Stocks: 66% (at today's marketing value)
                  Bonds: 11%
                  Cash Savings: 23% across two currencies. (No CDs, some cash in MMAs)

                  If we eliminate cash in the equation the numbers will look like this:
                  Stocks 86% (at today's market value)
                  Bonds: 14%

                  So I am about 6% too much on stocks which is what I am trying to catch up on.

                  I am limited to 20k a year for bonds, and feel it might make a nice way to give myself income when I retire. Basically a fixed income. If I have 10k in bonds come due a year, that gives me 20k for live a year. Just in bonds. Hoping SS will still be around, right now that would offer me somewhere around 1000-1400 a month. None of this includes whatever stocks I may still have.
                  Last edited by jeffmem; 02-05-2019, 09:46 AM.

                  Comment


                    #10
                    Originally posted by jeffmem View Post

                    Could you recommend a few index funds that might work for that small amount of money?
                    With only $2,000 to work with, and with the account at a broker, not a mutual fund company, I'd probably go with an ETF. Find out if they offer any fee-free ETFs. I know some companies like Vanguard and Schwab do. I'm not familiar with TD's offerings. Then I would choose based on what holdings you already have. Figure out if you need to supplement your large company, small company, or international holdings. I have no idea where your current stock money is invested already.
                    Steve

                    * Despite the high cost of living, it remains very popular.
                    * Why should I pay for my daughter's education when she already knows everything?
                    * There are no shortcuts to anywhere worth going.

                    Comment


                      #11
                      Originally posted by disneysteve View Post

                      . I have no idea where your current stock money is invested already.
                      Are you asking what stocks I currently invest in?

                      AMZN
                      APT
                      BAC
                      BHC - this is VRX, I bought on the way down and it kept going, stupid buy still losing money.
                      BX
                      CECE
                      CSIQ - losing money, will sell soon
                      DIS
                      DPLO - losing a lot
                      EVOMY
                      FB
                      FEYE - losing a lot
                      FIZZ
                      FLO
                      GE - have way too many shares and am losing quite a bit
                      GLW
                      GPRO - losing a lot, stupid buy.
                      IBKR
                      INTC
                      MA
                      MRO
                      MSFT
                      MTCH
                      NNN
                      NVDA
                      NVO - losing
                      PACW
                      PETS
                      SBUX
                      SLV - never sold, of course losing money through ETF fees.
                      SWIR
                      VEEV
                      WIX - might sell soon.
                      WYNN - will sell soon
                      XON stupid buy lost almost all.
                      ZAYO
                      ZIOP stupid buy losing almost all.

                      Yes, I know, I bought too many stocks and I am large cap heavy, and the small/med caps I bought are not doing well. Luckily I am up about 30% overall. I am waiting for some of them to level out or balance out or at least not let me lose so much before I sell, I have stopped buy new companies.
                      Last edited by jeffmem; 02-05-2019, 06:30 PM.

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