Identify the True Statements Regarding Disulfide Bridges Disulfide Bonds

Some people think sugary processed foods are why we get soft. Other people argue transitioning from a labor-intensive to a capital-intense economy makes us less active. I’m going to argue high I Bond returns are the real reason for making us not try so hard!

Investing in an I Bond today is almost too good to be true. How amazing is it that we can borrow at a negative real rate, yet earn a positive real guaranteed rate? This is an anomaly that won’t last forever. Take advantage.

Every person can buy $10,000 worth of I bonds with a 9.62% interest rate starting in May 2022! This is up from 7.12% at the beginning of 2022. After six months, the interest rate will float, depending on inflation. But with inflation elevated, you might as well take advantage.

If you’re married, you can buy $20,000 worth of I bonds in December and buy another $20,000 of I bonds in January the following year. If you each own a business or trust, now you’ve got four entities able to buy $10,000 worth of I bonds each year. In other words, your combined unit could purchase $80,000 worth of I Bonds in a short period of time.

Just know I bonds can’t be redeemed for one year. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest.

I would invest ~80% of my net worth for a guaranteed 9.62% return if I had the option. After such a massive run-up in risk assets, locking in a guaranteed 9.62% return feels nice!

Therefore, at the very least, I’m going to be buying the maximum amount of I bonds this year and next. You can check TreasuryDirect for more I Bond info.

What High I Bond Returns Means For Your Investments

The implicit assumption from I Bonds paying 9.62% is this: Your investments better return more in 2022 or else why bother taking more risk? Further, why bother working so hard? This is how we get soft.

I’ve touched upon the topic of what to do when your investment returns make more than your active income. When this crossover point happens, it’s natural to want to slack off a little bit.

To clarify, I don’t mean going to the extreme like only working two hours a day like some in tech do. But maybe you take more vacations or slow down your responsiveness to requests.

Sure, earning a 9.62% I Bond interest rate is due to temporarily elevated inflation. However, it’s still a real positive return. Further, if lower return assumptions for stocks and bonds come true, then all the more reason to appreciate a 9.62%, risk-free nominal return.

The entire American active investing world will look at this I Bond hurdle to beat. If they don’t, what use are they? They might as well change careers for providing negative alpha. Of course, there are no guaranteed returns.

When you’ve got a high guaranteed return, you take less risk. Offering high government bond yields is one way the government soaks up excess liquidity in the system. At the margin, liquidity stops chasing speculative investments to find more safety in government bonds.

An Investment Exercise To Conduct Due To High Guaranteed Returns

The true risk-free rate is the 10-year bond yield since there is no cap on how much one can purchase. However, the I Bond yield is also a worthwhile risk-free rate. Use it to think about how you will asset allocate going forward.

Take all your risk assets and multiply their value by 100% + the I Bond rate. In this case 109.62%. For example, if you have a $1 million in stocks and real estate, you’d get $1,096,420. Now ask yourself whether you’d be satisfied with this much money 12 months from now or not. And if you’re not, then you’ve got to take more risk to try and earn a greater return.

Now let’s say you have a $10 million in investments. Would you be happy with $10,964,200 in 12 months? I would assume more of you would be happier with $964,200 versus $96,420, even though the percentage increase is the same. $964,200 is big bucks for doing nothing.

In other words, the wealthier you get, the more you should enjoy lower risk or risk-free returns. Because losing money on a $10 million portfolio is far more painful than losing money on a $1 million portfolio. Given the government understands this loss aversion reality, it limits the amount of I Bonds each individual can purchase.

Remember, the first rule of financial independence is to not lose money. The second rule of financial independence is to never forget the first rule. The third rule is to live as long as possible.

Once you’ve built your financial nut large enough where it is generating a steady amount of livable passive income, you’re set! Don’t lose money because you will ultimately lose time.

More Logic Behind Investing In I Bonds

We know the average return for the S&P 500 is about 10%. We also know the average return for the aggregate bond market is around 5%. Therefore, if you construct a simple 60/40 portfolio, the expected return based on historical figures is about 8%. But of course, there is risk involved and the portfolio could lose value.

If you can earn a guaranteed 9.62% return through an I Bond, then most investors who invest in a 60/40 portfolio would probably choose the guaranteed return. Based on my asset allocation model between stocks and bonds, we can assume the target I Bond investor is age 40 and over.

Even for people who prefer real estate, a 9.62% return without having to do any work is very attractive. Cap rates on the coasts are around 2% – 4%. While cap rates in the heartland are around 6% – 10%. Negative real mortgage rates will remain a tailwind for the real estate market.

Be On The Lookout For Getting Too Soft

High I Bond returns are great. Just be careful taking things too easy due to easy money.

Perhaps the greatest challenge for personal finance enthusiasts is not slacking off too much. Because some of us have diligently saved, invested, and earned side hustle income for so long, life has become much easier. Don’t forget the thrill of a difficult challenge!

One of the reasons why retiring early and doing nothing is a bad idea is because your mind gets weak. When you don’t constantly challenge your mind it begins to get hazy. Further, once you lose purpose, the will to live tends not to be as great. Again, we go back to the,
why bother, attitude.

Therefore, we need to seek out failure by continuing to try new things. By doing so, we will stay motivated to be more productive. Of course, we should relax once in a while and lock in those free guaranteed returns. But the real fun about financial independence is not fearing the devastation that sometimes comes from taking new risks.

Finally, if you have kids, they tend to observe everything you do whether we realize it or not. If we lose our work ethic, the side effect might be raising spoiled and entitled children.

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Recommendation And Reader Questions

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Readers, how do you stay motivated to keep earning and producing when I Bond rates are so high? The government is also providing so much support that it feels harder to work harder. Are all developing nations destined to get soft? How do we teach our children to better appreciate their opportunities?

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