Higher I Bond Yields Are Calling. Should You Pick Up?

Plus: Our team’s latest on mutual fund capital gains distributions. [Morningstar](?utm_source=eloqua&utm_medium=email&utm_campaign=newsletter_improvingfinances&utm_content=49324&elqTrackId=65a0b942effb4e6296b6c0bdf7f9b060&elq=38a20a02a6f04c0e97e8c054a7b63eb2&elqaid=49324&elqat=1&elqCampaignId=24579) [Improving Your Finances] Improving Your Finances with [Christine Benz]( [Christine Benz] The yield on new I Bonds purchased between November 2023 and April 2024 is now 5.27%, according to [the U.S. Treasury](. That’s up a bit from the most recent interest rate of 4.3%. That’s an attractive real yield, of course, but the big knock on I Bonds is that purchase constraints limit each taxpayer to $10,000 in new I Bond purchases annually, plus an additional $5,000 if you receive a tax refund. [I wrote about the pros and cons of I Bonds]( versus their closest competitor for your inflation-protected dollars: Treasury Inflation-Protected Securities. I haven’t yet purchased any I Bonds for my own portfolio, as I’m loath to open yet another account for such a small amount. But as retirement draws closer, the prospect of inflation-protected returns starts to get more interesting. In a related vein, I appreciated [analyst Paul Olmsted’s piece highlighting some of Morningstar’s favorite short-term bond funds](. While some investors stick with intermediate-term bonds for their core fixed-income holdings, short-term bonds have shown their merits over the past year, managing to hold their ground or even gain value as longer-dated bonds have slumped. The key with this category, in my opinion, is to avoid undue risks with respect to credit quality, duration, or anything else. As we’re coming into the home stretch of the year, it’s worthwhile to keep capital gains distributions on your radar. These payouts are a nonevent if you own a fund in a tax-sheltered account like an IRA or in your company retirement plan, but they’re a bigger deal if you own a fund in a taxable account. [Stephen Welch took a look at which funds are planning to make sizable distributions this year]( and it’s once again a depressingly long list. Actively managed funds have gotten caught in a terrible cycle where shareholders leave for more tax-efficient funds (mainly exchange-traded funds), causing management to sell securities to pay off departing shareholders and resulting in bigger distributions for fundholders who stick around. My advice: [Check your cost basis if you own one of these serial capital gains distributors]( because you may have already prepaid any taxes that are due upon the sale. Finally, I enjoyed [the conversation that Jeff Ptak and I recently had with author and blogger JL Collins](. JL has been called “the godfather of the FI movement” (FI stands for financial independence), and his new book is a series of essays from real individuals about how they charted their own paths to financial freedom. As always, JL espouses the virtues of simplifying your lifestyle as well as your portfolio, worthy goals for all of us. With warm regards, Christine Benz [5 Short-Term Bond Funds That Consistently Deliver]( What makes these funds unique? [Read More]( Share: [facebook]( [twitter]( [linkedin]( ADVERTISEMENT [media]( [media] [TIPS Versus I Bonds]( I Bonds boast tax advantages, but purchase limits reduce appeal. [Read More]( [A Tax-Efficient Portfolio Makeover May Be Less Painful Than You Think]( Proper accounting of cost basis is essential to avoid paying more taxes than you need to. [Read More]( [Which Popular Funds Could Hand Their Shareholders Big Tax Bills?]( What investors need to know about capital gains distribution estimates. [Read More]( [JL Collins: The Many Paths to Financial Independence]( The ‘godfather of the FI movement’ discusses the key takeaways from his latest book, where he turns for financial wisdom, and what higher yields mean for investors. [Listen Now]( [It’s Open Enrollment Season. Have You Taken a Good Look at an HSA?]( For high-income investors, the high-deductible healthcare plan/HSA combo is close to a no-brainer. [Read More]( [Year-End Charitable-Giving Strategies]( Tax- and retirement-planning expert Ed Slott delves into qualified charitable distributions and donating appreciated securities. [Watch Now]( Listen Now Get the latest investing insights and market updates with [Morningstar’s podcasts]( available on your iPhone, iPad, Android, PC, or smart speaker. Stay connected: [twitter]( [facebook]( [linkedin]( [instagram]( [YouTube]( [Apple News]( [View online]( | [See all newsletters]( | [Share your feedback]( [Unsubscribe]( from this newsletter. Or update your [email preferences](. © 2023 Morningstar, Inc. All Rights Reserved. 22 W. Washington St. Chicago, IL 60602