The Holy Grail – An Investment Without Risk

Let me begin by saying this is more of an investment article than a real estate article, but I hope you’ll find it useful, nonetheless.

If someone offers you a risk-free investment, be suspicious because by its very nature, financial investing is risky. The foundation upon which investing is based is the risk-return trade-off, which says that the higher the risk, the bigger the potential reward. Inherent in this saying is the idea that risk is a central part of the equation.

With all that said, may I present an (almost) risk-free investment for your consideration: the Series I bond from the U.S. Treasury that pays 9.62 percent tax-deferred interest and is available from now through October 31, 2022. If you buy before the deadline, that 9.62 percent return is guaranteed for six months. “I” series bonds mean they are tied to inflation. If inflation is high, the interest rate is high. If inflation is low, the rate is low. So, at the end of six months, the Treasury Department adds the interest you earned to your principal and pays interest on your new principal balance at the new rate it will determine on November 1.

Other low- or no-risk options such as savings accounts, short-term certificates of deposit (CDs), or a T-bills, cannot come close to this return.

Additional upsides include the fact that this income is not taxable by the state, which increases your after-tax return. Also, if funds are used for higher education, the income is completely tax-free. Did I hear you say you have grandkids interested in going to college some day? You can buy a bond in their name and when they cash it in to go to school, the proceeds will be tax free. Even if they don’t use it to go to school, it’s likely their tax bracket will be lower than yours, so the tax liability will be limited. Heck, they could cash it in and use the proceeds toward a down payment on a home—one of my favorite investments.

Are there any downsides or limitations, you wonder? The biggest downside is that this opportunity is limited to a $10,000 annual investment. However, we have a little wiggle room here. If you own a corporation, including a limited liability company (LLC), you can buy another Series I bond (one per company). If you have a living trust, it can also purchase one. If you received a federal tax refund, you are allowed to put up to $5,000 of that refund toward a Series I bond in addition to the $10,000 limit. (Note: the $5,000 refund is per return, not per person.)

You, your spouse, your living trust, your LLCs and corporations can buy up to $10,000 each online (you can do this each calendar year, but the rates won’t always be 9.62). You can also buy as many gift bonds as you like, but only if the recipients haven’t already purchased their own Series I bond. The annual $10,000 limit on bond purchases applies to the recipients, not to you.

Note: this is a five-year bond that you are obligated to keep for one year. If you choose to liquidate after a year, you forfeit three months’ worth of accrued interest. If you earned $962 on your $10,000 investment during a one-year period, you would have to refund $240.50, leaving you with a $721.50 return. Even under those circumstances, that’s not too bad.

To buy these bonds, visit to set up the appropriate accounts. If you want to invest your tax refund, you must purchase paper bonds using the Form 1040.

If you have questions about property management or real estate, please contact me at or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

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