| By this stage of your life, you have all heard the | | | | month CDs)! |
| sage advice to save money for an emergency | | | | But here's the catch: I-Bonds can not be sold for |
| fund. Most financial articles and planners advocate | | | | one full year after purchase. Investing your entire |
| keeping between six to twelve months of | | | | emergency fund would tie up your money for an |
| after-tax income in a money market or similar | | | | entire year. Not exactly the liquidity you need. |
| cash equivalent account. | | | | This is where laddering can help. |
| Emergency money provides a safety cushion to | | | | Invest just 10% of your money in I-Bonds. This |
| absorb the unexpected surprises of life. | | | | still leaves 90% of your money immediately |
| Preservation and liquidity of these funds are of | | | | available from a savings or money market |
| paramount importance. You must be able to | | | | account. One year from now, invest another 10% |
| access your money immediately when needed. | | | | in I-Bonds. This leaves just 80% in your savings |
| But liquidity and preservation requires purchasing | | | | account. But wait. Your first I-Bond is now one |
| low risk investments…extremely low risk. | | | | year old and can be cashed at any time. You still |
| This translates to accepting low | | | | have immediate access to 90% of your cash in |
| returns…extremely low returns. | | | | any time of need. Once each year, invest just |
| In today's economy, keeping cash in money | | | | 10% of your money in I-Bonds without ever |
| market funds will yield a paltry 1.5%. Checking and | | | | losing immediate liquidity of your emergency |
| savings accounts barely return half that, or 0.75%. | | | | funds. All while earning a substantially larger rate |
| Clearly returns on cash savings are limited. A | | | | of return, protected against inflation, and |
| sudden return of inflation to our economy and | | | | guaranteed by the U.S. government. |
| your emergency stash could actually lose value. | | | | Sidebar Article: |
| What's a prudent investor to do? | | | | WHAT ARE I-Bonds? |
| Think-outside-the-box as platitudes go…or | | | | I-Bonds are a new liquid savings bond backed by |
| metaphorically, climb the ladder to success. | | | | the U.S. Government. While you own them, they |
| “Bond ladders" describe the purchase of | | | | earn interest and protect your savings from |
| multiple bonds with staggered maturities. This | | | | inflation. I-Bonds can be purchased and sold online |
| purchase strategy minimizes interest rate risk and | | | | at the US Treasury's website, Treasury Direct. |
| smoothes cash flow. | | | | There are never any transaction or processing |
| But laddering can be used for more than just | | | | fees from Treasury Direct and you can easily and |
| controlling interest rate risk. Savvy investors use | | | | securely transfer funds from your bank account |
| bond ladders to substantially increase the liquidity | | | | for the purchase of any bond. I-Bonds can be sold |
| of higher yielding investments. I-Bonds are a | | | | anytime after 12 months. You receive the original |
| perfect vehicle for such a strategy. I-Bonds are a | | | | purchase price plus interest earnings. I-Bonds sold |
| relatively new savings bond issued and backed by | | | | within the first five years will forfeit three months |
| the U.S. Treasury. Your money is 100% safe and | | | | interest. For more information on I-Bonds, visit |
| currently earns 3.39% (twice the rate of six | | | | Treasury Direct. |