Personal Investments • Evaluating 30-Year TIPS vs. I Bonds for Long-Term Investment

I'm currently deliberating between investing $10,000 in 30-year Treasury Inflation-Protected Securities (TIPS) or I Bonds and am trying to determine which option might yield better returns under various inflation scenarios. Here are my assumptions and calculations:

Tax Situation:
- Marginal tax bracket: 50% (both now and in 30 years)

Inflation Assumptions:
- Scenario 1: 2.5% inflation
- Scenario 2: 3.5% inflation
- Scenario 3: 1.5% inflation

Investment Details:

1. 30-year TIPS
- Yield: 2.3% real
- Total annual return (including inflation): 2.3% + inflation rate
- Post-tax return calculated each year as: 50% of (2.3% + inflation rate)

2. I Bonds
- Yield: 1.3% real
- Total annual return: 1.3% + inflation rate
- Post-tax return calculated as 50% of cumulative gains in 30 years

Calculations:

For 2.5% inflation:
- TIPS: $20,370.36 after tax
- I Bonds: $20,307.02 after tax

For 3.5% inflation:
- TIPS: $23,575.52
- I Bonds: $25,408.38

For 1.5% inflation:
- TIPS: $17,588.37
- I Bonds: $16,448.89

Averages Across Scenarios:
- Both investment options appear to yield similar outcomes when averaging the returns across different inflation scenarios.

Given these calculations, it seems both options are comparable overall. However, considering simplicity and the potential reinvestment risk associated with TIPS (where I assume I can reinvest the interest at a 2.3% real rate), I'm leaning towards I Bonds.

I would appreciate any insights on whether my reasoning and calculations sound accurate, if there are any factors I might be missing, and which investment might truly serve better under these conditions. Your expertise and advice would be invaluable in helping me make a more informed decision.

Thank you!

Statistics: Posted by Thomas93 — Sat May 04, 2024 4:34 pm — Replies 2 — Views 262

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