Inflation is at historic highs, well above anything the U.S. has seen since the early 1980s. On Friday, June 10, investors and economists will be watching closely when the Bureau of Labor Statistics releases its latest consumer price index report, which measures the average change over time in prices paid by consumers for common goods and services.
Some experts believe inflation might show signs of cooling off, but Suze Orman, host of the “Women & Money … and Everyone Smart Enough to Listen” podcast and co-founder of emergency savings firm SecureSave, disagrees.
“I personally believe that this inflation is here to stay for quite some time,” said Orman, who joined CNBC Senior Personal Finance Correspondent Sharon Epperson on CNBC’s Twitter Space conversation, “Invest with Pride: Ready. Set. Grow,” on June 2.
There’s a way to capitalize on high inflation, though, Orman said: “The No. 1 investment that every single one of you should have no matter what right now is a [U.S. Treasury] Series I bond.”
When markets are volatile, many investors turn to bonds as a safe haven investment because bonds are less likely than stocks to incur large losses, and the interest they pay will help you keep up with inflation. If you hold your money in cash or in a typical checking or savings account, by contrast, it will lose value.
Orman recommends I bonds, which are backed by the U.S. government and don’t lose value. They earn interest on both a fixed rate and a variable rate, changing every six months. The variable rate is based on inflation and is now a record 9.6% through October 2022. The fixed rate is at 0%.
And investors don’t need much to start investing in I bonds. “They come from $25 all the way up to $10,000, so there’s no excuse that all of you should not have one,” Orman said.
I bonds must be purchased directly from the Treasury’s website, and you can buy no more than $10,000 worth per person per calendar year. There is a caveat: You can’t redeem these bonds for at least one year after you purchase them.
If you cash out any time over the first five years of owning the bond, and you’ll face a penalty equal to three months’ worth of interest. However, “given that inflation is probably here to stay for some time, even with a three month interest penalty in years two through five …. It’s still worth it, believe it or not,” Orman said.
Other experts agree and suggest thinking of I bonds as a shorter-term investment vehicle, since you can use them to help turn income into wealth.
Post courtesy of CNBC