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The week's question
In March 2025, in the thread "Re: OT, out", Umm asked the members: "Do you think it is because America is made up of magical soil that makes businesses based in America magically profitable?" This week it is put to everyone again. The button below opens the small thread re-asking it - read what others have said so far, then give your own answer as an ordinary reply.
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Personal Finance / Retirement Investing
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Author: mungofitch ✹✺🐝 SILVER
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Number: of 1355 
Subject: Re: Portfolio for a 90 year old
Date: 12/04/25 9:33 AM
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True, there are no coupons but there is imputed interest annually.
I'm not sure who benefits from STRIPS. They are based on other Treasury securities, so wouldn't they have lower yield after the financial institution takes its cut?


As for the cut, I think it's one of those businesses with flows so large that the cut is likely pretty microscopic as a percentage. Like the repo market.

I didn't know they hit individuals with imputed interest...seems a bit harsh to pay tax on money you didn't get! But it's still useful for lots of pension funds and the like since so many of those portfolios are not taxed annually. And there might be a lot of the demand for the coupon streams, so for all I know one half (the principal or the coupon stream) is sold at a mild loss to get the mild profit on the other half.

The analogy is the dividend futures market in Europe. You can make a multi-year bet on what the European stock index aggregate dividends will be several years in the future. These tend to be perennially underpriced, since there is a much larger population of big money players that wants to hedge their dividend streams than there are people willing to take the other side of the trade and bet that dividends will be normal in future. Remarkably close to a free lunch, if bought at the right moment. Not every year, of course, but on average.

Jim
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This community has written 1,284 posts about Retirement Investing. The article-length ones it recommended most:
The Case for Long-Term Buy and Hold Investing · 49 recs · 2025
Transferring assets to the next generation · 20 recs · 2025
Retirement Year 8 · 17 recs · 2025
(nearly) year one of retirement has been good · 11 recs · 2026
Buying Treasuries Via Vanguard · 10 recs · 2023
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