TSP loan for I bonds

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yeagley23
Posts: 5
Joined: Sat Feb 25, 2012 1:21 pm

TSP loan for I bonds

Post by yeagley23 »

This feels like a wacky idea but the numbers don't look terrible and it seems like a gamble on where the market will go in the next year or 3. Bear with me and correct me where I'm wrong...
Current April 2022 TSP loan rate is 2.5%
Current I bond rate is 7.12%
Current yield 4.62%

There are talks of the I bond increasing to 9.6% which would yield 7.1% if the TSP loan amount remains the same (likely won't).

There are penalties for cashing out the I bond early but they reduce to forfeiting 3 months of interest after 1 year. There's no penalty after 3 years.

The growth rate of the TSP will not be the 15% to 50% I've gotten over the last few years. It may even be negative (currently the only positive fund for the year is G). I feel my opportunity costs are low since it looks like the economy will retract/correct.

I figure I could sit on it for 1 year and do decently well with NO risk, then reassess when 12 months is up. Am I crazy? Missing something?

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bloobs
Posts: 1380
Joined: Tue May 21, 2019 8:00 pm

Re: TSP loan for I bonds

Post by bloobs »

Current April 2022 TSP loan rate is 2.5%
Current I bond rate is 7.12%
Current yield 4.62%
Taking out a short term loan makes sense to me if you are nearing retirement and decide to be 100% in the G fund.
The growth rate of the TSP will not be the 15% to 50% I've gotten over the last few years
You don't know this for a fact. If you apply specific seasonal strategies you may likely still beat the market regardless of the macroeconomic environment du jour.

jackyl33
Posts: 60
Joined: Tue Sep 30, 2008 5:17 pm

Re: TSP loan for I bonds

Post by jackyl33 »

I’ve thought about doing this also. Your yield in fact would be higher because the 2.5% rate on the loan is paid back to yourself. The loan only costs $50!

jimmyk
Posts: 9
Joined: Mon Dec 08, 2014 6:47 pm

Re: TSP loan for I bonds

Post by jimmyk »

Looks reasonable. Only thing I see is a $10,000 purchase limit. Although this is per person that you buy for in a family. So I guess if you had a spouse that would be (2 x $10k) = $20,000. I may not be looking at this properly but say a 10% rate of return on $10k =$1,000. $50 fee/$1,000 = 5% cost to play. Obviously the more you can purchase the lower the fee percentage. Also need to figure in penalty if you pull out early do to change in economy or your goals/plan.
Hit one or two good days or week in one of the C or S fund following a strategy and you made that $1000 (and potentially more). You could sit in G the rest of the time if you wanted and call it good.

I am with Bloobs. There is a potential opportunity cost depending on what happens to the economy.

yeagley23
Posts: 5
Joined: Sat Feb 25, 2012 1:21 pm

Re: TSP loan for I bonds

Post by yeagley23 »

The opportunity costs could be up or down, which is why I'm still looking at this a a bit of a gamble. What turns me off is that it costs money to get into while IFTs in my TSP are free.

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Fund Prices2022-08-15

FundPriceDayYTD
G $16.99 0.02% 1.53%
F $19.14 0.23% -8.37%
C $65.49 0.40% -8.98%
S $71.11 0.23% -14.77%
I $33.96 -0.58% -13.89%
L2065 $13.19 0.04% -11.34%
L2060 $13.20 0.04% -11.33%
L2055 $13.20 0.04% -11.33%
L2050 $27.12 0.05% -9.67%
L2045 $12.44 0.05% -9.01%
L2040 $45.67 0.05% -8.29%
L2035 $12.14 0.05% -7.49%
L2030 $40.68 0.04% -6.65%
L2025 $11.70 0.04% -4.46%
Linc $23.04 0.04% -1.89%

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