I often talk about long-term investing – the idea of buying something and then “forgetting about it” for a decade or two.
Even though it’s harder than it sounds, there’s no doubt it can produce amazing results.
I was recently reminded of that fact when I moved into my new house here in Santa Barbara.
No, I’m not talking about the house itself, even though I plan on owning it for the next 20 or 30 years.
It’s something I put away in a box back in the late 1980s…
An old idea that you should reconsider today…
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Especially because new versions of this old investment have a hidden feature – a built-in, fully guarantee that your money will double without any risk of loss whatsoever.
What could I possibly be talking about?
Some weird tangible asset?
I found a bunch of old ones originally issued during various Decembers between 1985 and 1988.
My grandparents bought them, no doubt as Christmas gifts when I was my daughter’s age.
Yes, these investments are relics from the past … especially the paper variety.
Yet there are several reasons – beyond my own personal nostalgia – to revisit them right now.
Reason #1: Safety
Traditional U.S. savings bonds are about as safe as investments get.
Unless the U.S. government defaults on its debts, your money is covered no matter what else happens in the world or the global financial markets.
Reason #2: Favorable tax treatment.
Like Treasuries, interest from Series EE savings bonds is exempt from state taxes.
Plus, an owner or co-owner can typically exclude income from Series EE savings bonds from federal income taxation if the money is used for qualified higher education expenses in the same year the redemption occurred.
Just know that there ARE income restrictions in place.
Still, you get the chance to defer taxes on your savings bond earnings for as long as you hold the bond through its 30-year lifespan.
Reason #3: The Treasury Department’s Guarantee
You read that right.
The Treasury Department currently guarantees that new issues of Series EE savings bonds will double in value 20 years from their original issue date.
You wouldn’t know this by looking at the advertised rate on new EE bonds purchased between November 1st, 2017 and April 30th, 2018.
That figure is a meager 0.1%.
The interest begins accruing from the first day of the month you buy the bond, and it’s added in on a monthly basis.
The interest is compounded semiannually, meaning your first six months of interest get put in with the principal and then new interest gets earned on the total.
The guaranteed interest rate is good for the first 20 years. After that, the rate can change for the last ten years of the bond’s life … and the Treasury would provide advance notice if that’s going to happen.
However, the Treasury also guarantees that the bond will reach its face value by the same 20-year mark.
Since you buy the bond at half face value, that means your money is guaranteed to double in two decades regardless of what the current interest rate is.
In other words, anyone who holds the bond for the next 20 years will get an effective annual interest rate of 3.53% … fully guaranteed with zero risk of loss.
Heck, even a 30-year Treasury is only yielding roughly 3.16% at the moment!
So Series EE Savings Bonds give you MORE annual interest and only require you to hold them two-thirds as long. (Though you can continue collecting interest for a full 30 years, as well.)
Like Series I Savings Bonds, which I covered in a previous Roadmap, you can only buy $10,000 per Social Security number a year.
You also need to hold them for at least one year, and you’ll forfeit three months of interest if you redeem your bonds within the first five years.
But again, if you’re the kind of person who can tuck them away for a couple decades – either for yourself or a future college student in your life – it might be a good time to take another look at these boring, old bonds.
The only other thing to consider is that the Treasury could always alter this feature going forward. The next chance for them to do so is May 1st, when the new six-month rates are announced.
This article originally appeared on The Daily Reckoning.