But EE Bonds are purchased at 1/2 value -- at marurity they double and then if not cashed out, the interest keeps adding on for 30 years when it stops. So the $500 bond bought by his parents only cost $250 initially, no? And if one uses the bonds to pay college costs, they are tax free.
The new I bonds are face value but have higher interest from what I understand.
The issue of taxes after inflation apply to all investments, not just US Bonds. The problem is that inflation is an exponential increase. Keep your investment long enough, and eventually nearly all of the value in your investment becomes taxable, as the original purchase price becomes negligible.
The real loss is in the purchasing power of the principal ($500) and this is where the bearer of the bond gets killed (thought there is a smaller fractional component in the loss purchasing power of the interest paid during that period) due to inflation. So, Let's use no-fiat money as a purchasing power gauge instead. Gold was $380 an OZ eight years ago now it's $1320. That translates to about a 72% loss in real value over eight years for the bearer of the bond.
You did the math wrong dude ! They tax 28% of the $157 in interest which leaves you with $113 which is your nominal interest profit. That leaves you with $500(principal) + $113 (interest) = $613 after eight years. The real loss is in the inflation cost on the original ($500) prinicipal.
But EE Bonds are purchased at 1/2 value -- at marurity they double and then if not cashed out, the interest keeps adding on for 30 years when it stops. So the $500 bond bought by his parents only cost $250 initially, no? And if one uses the bonds to pay college costs, they are tax free.
The new I bonds are face value but have higher interest from what I understand.
So perhaps the math done in the video is wrong?
hyperlexis 3 months ago
The issue of taxes after inflation apply to all investments, not just US Bonds. The problem is that inflation is an exponential increase. Keep your investment long enough, and eventually nearly all of the value in your investment becomes taxable, as the original purchase price becomes negligible.
FortNikitaBullion 1 year ago
The real loss is in the purchasing power of the principal ($500) and this is where the bearer of the bond gets killed (thought there is a smaller fractional component in the loss purchasing power of the interest paid during that period) due to inflation. So, Let's use no-fiat money as a purchasing power gauge instead. Gold was $380 an OZ eight years ago now it's $1320. That translates to about a 72% loss in real value over eight years for the bearer of the bond.
zimtran007 1 year ago
You did the math wrong dude ! They tax 28% of the $157 in interest which leaves you with $113 which is your nominal interest profit. That leaves you with $500(principal) + $113 (interest) = $613 after eight years. The real loss is in the inflation cost on the original ($500) prinicipal.
zimtran007 1 year ago