Hello, YieldAlley readers! In this issue:
Navigating Inflation With I-Bonds in Your Portfolio
Tech Stocks Pull US Markets Lower as China’s Export Limits and Inlation Worries Dampen Sentiment
Are You In A Financially Literate State?
And more!
NEWS
Standout Stories
🛍️ Buy-the-dip or buy-the-bottomless-pit? (Acadian)
🏝️ Why Millennials and Gen Z are Taking Micro-Retirements—and How You Can Too (Investopedia)
📉 A Historical Analysis of Tariffs (Verdad)
🧐 Which Investments Will Protect Your Portfolio in a Recession? (Morningstar)
🎄 In China’s ‘Christmas Town,’ Trump’s tariffs are dimming the lights (CNN)
MARKET THOUGHTS
Tech Stocks Pull US Markets Lower as China’s Export Limits and Inlation Worries Dampen Sentiment
ECONOMY
The housing market continues to struggle as policy uncertainty impacts builder confidence, with the NAHB Housing Market Index at 40 in April, remaining below the 50 threshold that indicates positive sentiment. Housing starts fell over 11% in March to an annualized rate of 1.32 million, missing forecasts of 1.42 million. Meanwhile, retail sales surged 1.4% in March, the highest monthly increase in over two years, with 11 of 13 categories showing growth. Motor vehicle sales jumped 5.3% as consumers rushed purchases ahead of the Trump administration's 25% automobile tariff, while building materials, sporting goods, and electronics also saw notable gains.
STOCKS
Major stock indexes finished the holiday-shortened week mixed, with smaller-cap indexes outperforming larger ones. The S&P MidCap 400 and Russell 2000 posted gains of 21.84 and 20.42 points respectively, while the Dow Jones Industrial Average (-1,070.48), S&P 500 (-80.66), and Nasdaq Composite (-438.01) all closed lower. Technology stocks faced pressure after the U.S. announced new restrictions on chip exports to China, sending shares of NVIDIA, AMD, and other AI-focused companies lower on Wednesday. Federal Reserve Chair Powell's comments at the Economic Club of Chicago further dampened sentiment when he stated that tariff increases have been "significantly larger than anticipated" with effects that "will include higher inflation and slower growth," while indicating the Fed would wait for "greater clarity before considering any adjustments" to monetary policy.
FIXED INCOME
U.S. Treasuries rebounded this week, generating positive returns after the previous week's sell-off triggered by global trade uncertainty. Intermediate-term Treasury yields decreased most significantly, followed by long- and short-term yields, with bond prices moving inversely to yields. Investors noted that Fed Chair Powell's hawkish comments on Wednesday created risk-off sentiment that helped drive Treasury market gains. Municipal bonds also posted positive returns, showing signs of stability following the prior week's decline. The bond market appeared to respond to Powell's indications that the Fed would maintain current policy amid economic uncertainty caused by escalating trade tensions.
INCOME BUILDING
Navigating Inflation With I-Bonds in Your Portfolio
Protecting your savings against inflation has become a top priority for many investors. With recent discussions about potential tariff-induced inflation, understanding how to effectively safeguard your purchasing power is more important than ever. One powerful tool in this battle is the I-Bond – a government-backed security specifically designed to preserve value during inflationary periods.
What Are I-Bonds and How Do They Work?
I-Bonds are inflation-protected savings bonds issued by the U.S. Treasury. Their unique structure combines two key components: a fixed rate that remains unchanged for the 30-year life of the bond, and an inflation rate that adjusts semi-annually based on changes in the Consumer Price Index (CPI-U).
Currently, I-Bonds issued through April 2025 offer a fixed rate of 1.2%, the second-highest in more than 15 years. This fixed rate is guaranteed for the entire 30-year term of the bond. The current inflation component brings the total annualized rate to approximately 3.11%.
Strategic Timing: Buy Now or Wait?
For investors considering I-Bonds, timing your purchase can significantly impact returns. Based on current projections, I-Bonds issued starting May 2025 could carry a slightly lower fixed rate of about 1.1%, but with a higher initial inflation rate of 2.86%, resulting in a projected combined rate of approximately 3.98%.
This creates an interesting decision point. If you purchase before April 30th, you'll lock in the higher 1.2% fixed rate for the entire 30-year term, but start with a lower inflation component. If you wait until May, you might get a slightly lower fixed rate but begin with a higher inflation adjustment.
For long-term investors, the fixed rate often proves more valuable since it remains constant throughout the bond's life, while inflation rates fluctuate every six months. The certainty of the higher fixed rate may outweigh the potential for slightly higher initial returns with the May rate.
Should You Redeem Older I-Bonds?
If you already own I-Bonds with lower fixed rates, you might wonder whether it makes sense to redeem them and reinvest in new ones at the current 1.2% fixed rate. Break-even analysis shows that for I-Bonds with a 0% fixed rate, it takes approximately 5 months to recover the early withdrawal penalty and start benefiting from the higher rate. For bonds with a 0.4% fixed rate, the break-even time extends to about 9 months, and for 0.9% fixed rate bonds, it's nearly 2.5 years (approximately 28 months).
This calculation assumes you're reinvesting the full amount and considers the early withdrawal penalty that applies if you redeem before five years of ownership. If you've held your I-Bonds for more than five years, there's no penalty, making the decision to switch much easier.
Practical Considerations for I-Bond Investors
When incorporating I-Bonds into your inflation protection strategy, keep these important factors in mind:
Annual Purchase Limits: The maximum annual purchase limit for I-Bonds is $10,000 per Social Security number under normal circumstances. This limitation means you'll need to plan carefully if you intend to build a substantial position.
Minimum Holding Period: There is a minimum holding period of 12 months for all newly purchased I-Bonds, meaning you can't redeem them until then regardless of market conditions.
Tax Considerations: I-Bond redemptions always consist of principal and the prorated interest amount. In the year of redemption, taxes may come due as part of that interest. You cannot choose to withdraw only principal or only accrued interest.
Interest Accrual: For I-Bond purchases, regardless of whether you buy at the beginning or end of the month, you will receive interest for the entire month in which you made your purchase. This means buying on April 28th would still earn you interest for all of April.
I-Bonds vs. TIPS: Complementary Inflation Protection
While I-Bonds offer excellent inflation protection, Treasury Inflation-Protected Securities (TIPS) provide another government-backed option with slightly different characteristics. The current 5-year TIPS has a break-even inflation rate of about 2.35%, meaning if you believe inflation will average more than this annually over the next five years, TIPS could be an attractive addition to your portfolio.
Unlike I-Bonds, TIPS can be held in retirement accounts and have no purchase limits, though they're generally considered more complex, so it's worth researching TIPS thoroughly before investing.
A Balanced Approach to Inflation Protection
While inflation concerns are legitimate, especially with potential tariff impacts, a measured approach typically serves investors best. Rather than making drastic portfolio changes, consider these balanced strategies:
Diversify Your Inflation Protection: Use both I-Bonds and TIPS alongside other asset classes that have historically provided inflation protection over long time periods.
Split Your Purchases: If you're undecided about timing, consider splitting your I-Bond allocation – perhaps buying $5,000 before April 30th to secure the 1.2% fixed rate, and another $5,000 after May 1st when the new rates are confirmed.
Maintain Appropriate Asset Allocation: While inflation-protected securities are valuable tools, they should be part of a broader, diversified investment strategy aligned with your time horizon and risk tolerance.
The beauty of I-Bonds lies in their dual-purpose functionality – they can serve both as inflation-protected emergency savings and as inflation-protected retirement savings. By understanding their mechanics and strategically incorporating them into your portfolio, you can build a more resilient financial foundation capable of weathering inflationary storms while staying focused on your long-term goals.
INCOME BUILDING
Cash Rates
Government Money Market Funds (7-Day Yields)
SNVXX (Schwab Government Money Fund - Investor Shares): 4.06%
SPAXX (Fidelity Government Money Market Fund): 3.97%
TTTXX (BlackRock Liquidity Funds: Treasury Trust - Institutional Class): 4.16%
VMFXX (Federal Money Market Fund): 4.22%
Brokered CD Rates (6-Month Rate)
Charles Schwab: 4.14%
E*Trade: 4.05%
Fidelity: 4.05%
Merrill Edge and Merrill Lynch: —
Vanguard: 4.05%
ETFs (30-Day Yields)
SGOV (iShares 0-3 Month Treasury Bond ETF): 4.18%
BIL (SPDR Bloomberg 1-3 Month T-Bill ETF): 4.13%
USFR (WisdomTree Floating Rate Treasury Fund): 4.24%
TFLO (iShares Treasury Floating Rate Bond ETF): 4.25%
Apple Gift Card Promotion: Buy $100, Get $10 Target Gift Card Free
Target has brought back its popular Apple gift card promotion, offering a free $10 Target gift card with qualifying purchases.
Offer Details
Promotion Period: Through April 19, 2025 (today)
Available at: Target stores and online
Requirements to Claim:
Purchase a $100 Apple Gift Card
Have a free Target Circle membership
Additional Benefits:
Stack with 5% back via Target REDCard
Alternative: Best Buy offers other gift cards on sale (10% off select gift cards)
Our Thoughts
This promotion is valuable for anyone planning future Apple purchases, as Apple gift cards can be used for everything from hardware (iPhones, Apple Watches) to services (music, iCloud storage). The 10% discount represents significant savings, especially on new Apple products which rarely see direct discounts. Accumulating these cards over time effectively creates a "layaway plan" that ensures you'll save 10-15% even on release-day purchases of new Apple products.
Picture of the Week
