Inflation in 2022 has been unprecedented, to say the least. Since March, its risen to a 40-year high ranging between 8.5 and 9.1 percent. Meanwhile, the S&P 500 is down roughly 20 percent this year so far. This leaves many nurse practitioner entrepreneurs wondering what they should be doing with their hard earned money to get a relatively decent return without taking on too much risk. Remember, you can either reinvest your profits back into your business or invest them elsewhere!
Ironically, one of the safest highest yielding investments out there right now is tied to inflation: The I bond. Yes, this good ole fashioned U.S. savings bond is currently paying a yield of 9.62 PERCENT for the next six months. That’s a guaranteed payout backed by the full faith of the United States, so it’s practically as RISK-FREE as it gets (and to be frank, I am investing heavily into bonds right now… you can’t beat a guaranteed 4-5% return that is risk free!).
Why are I bonds paying so much?
The “I” in I bond stands for “inflation”. I bonds have two interest rates: fixed and variable. Honestly speaking, the fixed rate is laughable paying barely just above 0 percent since the Great Recession of 2008.
However, the variable rate is what’s got everyone doing a double take. This is a rate that’s designed to keep up with inflation based on changes in the non-seasonally adjusted Consumer Price Index for all Urban Consumers (CPI-U). This is a figure that’s broader than the regular CPI that’s used for reporting inflation because it looks at the price changes of all items, including food and energy. This rate is then readjusted every six months based on the latest calculated CPI-U data.
As you might guess, when inflation is “normal”, an I bond isn’t worth a second thought. But when inflation skyrockets like it has over the past year, an I bond can be very lucrative.
While other people may be looking for high-interest savings accounts and CDs to park their cash, these products will probably pay 1 to 3 percent interest at best (but some are paying upwards of 4%!). Meanwhile, they could be putting their cash into an I Bond that’s going to earn well beyond what they can expect to make from other investments – again, virtually risk-free.
While there’s no guarantee that I Bonds will continue to pay out at this rate for the next few years (and let’s hope not because that would mean that the Fed has not been able to tame inflation), it can be a great way to build compound interest over the short term. Investors are required to keep their money in an I bond for at least 12 months. Afterward, they can pull it out if they wish by paying a penalty of forgoing the latest three months’ interest. Investors have until the end of October to lock into this incredible 9.62 rate for the next six months. Then the rate will go down to around 7%.
During times like this, it’s opportunities like these that I encourage nurse practitioners to become aware of. While everyone else might be freaking out about losses in their 401k or the state of the economy, remember that there are ALWAYS opportunities no matter what the environment looks like. You just have to keep your eyes open at all times. If you truly want to obtain financial freedom, then learning the foundations of investing and money management is critically important!
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