Vanguard IRA vs I Bonds Case Study

Tuesday September 18, 2012

Transcript:

Hey Jennifer and other fellow investors,

My name is Rafi and this week at Team Ark we are going to be discussing the advantages and disadvantages of US government saving bonds, specifically I bonds and IRAs or Individual retirement accounts.

But before we begin please note that the information provided in this video may not fit your risk tolerance and therefore any recommendations or suggestions should be taken into consideration with a professional financial advisor.

So if you are like Jen and you are able to save $5,000 a year what should you do with it? That’s a great question.. so lets dig in.

In our first option Jen could invest that $5,000 in something called US government I bonds.  What are I bonds you might ask? The I in I bond stands for inflation.  So basically I bonds always earn what the current inflation is and also depending on the financial environment in the US could also earn a fixed rate.  This fixed rate would be on top of the inflation percentage.  In addition, I bonds can be purchased online via the US treasury direct website in denominations as small as $25 to up to a max of $10,000 per year. The best part of these bonds are that they come with zero risk.

Another option to US government bonds is something called an IRA or an individual retirement account. Nowadays you can pretty much get an IRA account with most financial institutions such as vanguard, TD Ameritrade and the likes. So what’s an IRA account? We’ll if you familiar with a regular investment account and IRA has all the same capabilities meaning you can invest in bonds, CDs, mutual funds, stocks, ETFs, options, etc.  The major difference between a traditional investment account and an IRA are:

-       You can only deposit money into the account without penalty until you have reached the aged of 59 ½. With an exception to use the money in the IRA for your first mortgage

-       You can only invest $5,000 per year in an IRA.

-       Also there are two types of IRA accounts that have different tax implications

The reason why team Ark recommends Roth IRA is because you will most likely be at a higher tax bracket when you are closer to retirement than you are in your twenties.

Therefore Team Arks recommendation for Jen and other young investors out there is to invest in both ibonds and IRAs.

Team Ark signing off till next time.