The ABCs of I bonds
THE MOTLEY FOOL
Ask the Fool
Published: May 3, 2022
Q: What are “I bonds”? — P.G., Mansfield, Ohio
A: Series I savings bonds are offered by the U.S. government with interest payments that are adjusted for inflation. You can buy as little as $25 worth or as much as $10,000 per year (per individual) at TreasuryDirect.gov.
The interest paid by “I bonds” has two components — a fixed rate and a variable rate adjusted twice a year to account for inflation. At the time of this writing, the rate was a robust 7.12% for bonds bought through April 2022. (Inflation has been unusually high recently, resulting in the high rate.)
The I bond has a “maturity,” or lifespan, of 30 years, and the interest you earn on it is paid when you redeem it. You can redeem it as soon as one year after buying it, but you’ll forfeit the last three months of interest. After five years, you can redeem the bond without penalty.
I bonds can protect your money, but your long-term dollars are likely to grow much faster in stocks.
Q: I’ve been investing directly in a certain company’s stock for a long time without paying any broker commission fees. Is that smart? — S.B., St. Augustine, Florida
A: There’s nothing wrong with it. You’re probably investing via a direct investing plan or dividend reinvestment plan (“DRIP”). Such plans have existed for many years and are offered by lots of companies.
These days, though, many brokerages will also reinvest your dividends in more shares (or fractions of shares) of your stocks. And many brokerages also don’t charge any trading commissions. Learn more at this URL: Mot.ly/drip.
Fool’s School
Think Twice Before Day Trading
The idea of day trading — buying and selling securities such as stocks many times throughout the day, perhaps holding them for only minutes or hours — can be appealing. You may hear of some people making a lot of money that way. But odds are, you haven’t heard about the many day traders who lose a lot of money.
Day trading can resemble gambling more than investing. Successful long-term investors often study a company’s fundamentals (such as revenue and earnings growth rates, profit margins, and cash and debt levels) before investing in its stock. They’ll also research the company to understand how it makes its money, how it compares to peers and what its risks and opportunities are. They typically aim to hang on to their shares for years.
Day traders, on the other hand, may not know any details about the companies they’re buying into and selling out …….