Series I Savings Bonds vs the stock market
Monday, October 1st, 2012
Categorized as: Series I US Savings Bonds • Savings Bonds and competitive investments
Ask 100 financial advisors whether stocks or Savings Bonds are the better investment for the long term, and all the ones who earn commissions selling stocks will tell you that stocks are always the better investment.
Let's take a look and see if they're right. The following figure shows the results of investing an equal amount each month in both Series I Savings Bonds and the Vanguard 500 Index fund.
The graph begins when Series I Savings Bonds were introduced in September 1998 and has been updated through October 1, 2012.
The thin, black line shows how much money has been invested. It goes up very steadily because an equal amount of money is added each month. This month, it's at 170. In other words, the total amount invested is whatever equal monthly investment you choose times 170.
The upper blue line is the total value of the Series I Savings Bond investment. Note that this line never goes down. This month it's 243.98 times the monthly investment. This is 43.5% more than the total amount invested.
The red line that goes both up and down is the total value of the stock market investment, including reinvested dividends. This month it's at 236.77 times the monthly investment. This is 39.3% more than the total amount invested.
At any rate, no matter what this graph says, don't buy Savings Bonds expecting to outperform stocks.
Buy Savings Bonds because you can't get back less than you put in. They make a great foundational choice for the low-risk portion of your investment portfolio.
That said, it's clear that people who tell you that a stock investment always outperforms an investment in Savings Bonds don't know what they're talking about.