tiaa traditional account vs vanguard total bond market index

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tiaa traditional account vs vanguard total bond market index

Postby pablolo » Tue Jan 05, 2010 9:22 pm

I know this is not an apple to apples comparison. I am trying to simplify and consolidate my retirement portfolio (the simplicity as Taylor would say). I want to rollover my 2 iras with tiaa-cref to Vanguard. both are in the traditional account. I get the lower rate. this is a lateral bond or fixed income move. Bogleheads and tiaa-cref people: Where do you suggest I invest this? Is total bond a viable choice? I have a roth and a traditional ira. thank you. Pablo
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Re: tiaa traditional account vs vanguard total bond market i

Postby GG » Tue Jan 05, 2010 9:34 pm

pablolo wrote:I know this is not an apple to apples comparison. I am trying to simplify and consolidate my retirement portfolio (the simplicity as Taylor would say). I want to rollover my 2 iras with tiaa-cref to Vanguard. both are in the traditional account. I get the lower rate. this is a lateral bond or fixed income move. Bogleheads and tiaa-cref people: Where do you suggest I invest this? Is total bond a viable choice? I have a roth and a traditional ira. thank you. Pablo


I don't know that TIAA and TBM are equal in reality, but they probably invest in a similar set of investments long term. In reality there will be diversification advantages to both.
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Re: tiaa traditional account vs vanguard total bond market i

Postby tibbitts » Tue Jan 05, 2010 10:13 pm

pablolo wrote:I know this is not an apple to apples comparison. I am trying to simplify and consolidate my retirement portfolio (the simplicity as Taylor would say). I want to rollover my 2 iras with tiaa-cref to Vanguard. both are in the traditional account. I get the lower rate. this is a lateral bond or fixed income move. Bogleheads and tiaa-cref people: Where do you suggest I invest this? Is total bond a viable choice? I have a roth and a traditional ira. thank you. Pablo

It depends how much your balance is in the IRAs. If you have $10k or something it doesn't matter. If you have $100k+, I think you might have more regrets than I do if you dump it all in a bond fund, particularly one like TBM that includes a lot of treasuries.

I have some of the lower rate TIAA account as well, and I think TIAA is in a bit of a tough spot in that when they increase the current rate, they're going to have to raise the older vintage rates too. Kind of like with i-bonds. So I don't have a lot of confidence in that account going forward. I wouldn't even think about transferring out at 3.25%+, but that 3% is getting hard to take. Sadly, I also think that the only alternative - and it's a completely different animal - that I'd take a (big) chance on at VG right now is high yield corporate.

Paul
Last edited by tibbitts on Wed Jan 06, 2010 9:40 am, edited 1 time in total.
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Postby House Blend » Tue Jan 05, 2010 11:07 pm

For a long-term plan, I think a slice of Total Bond and a slice of VIPSX is reasonable (doesn't have to be 50:50). But you'll have to prepare yourself for the possibility of significant losses when interest rates climb (as they almost surely will). You've probably gotten accustomed to the always-increasing nature of Traditional.

Also reasonable: replacing Total Bond with Intermediate Term Bond Index. Longer duration, hence riskier, but some people prefer it because it omits mortgage backed securities.

More conservative would be replacing Total Bond with Short Term Bond Index.

If you want to market time, wait until rates jump a percent or two, and then make the move from Traditional to VG Bonds.

You also might find it instructive to look at the composition of the VG Target Retirement funds. I think they don't add VIPSX until 5 or 10 years from the target date.
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tiaa vs total bond

Postby pablolo » Wed Jan 06, 2010 10:36 am

thank you for your input. I have about 50k in each ira at tiaa-cref. my current vintage rate is 4.25% pablo
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Re: tiaa vs total bond

Postby House Blend » Wed Jan 06, 2010 1:45 pm

pablolo wrote:thank you for your input. I have about 50k in each ira at tiaa-cref. my current vintage rate is 4.25% pablo


Really? According to the current interest rate tables, there's only one vintage for IRA's that's paying a rate that high --July-Sep of 2008.

Looks like you got lucky. I assumed from your original post that most of your vintages were earning the minimum guarantee of 3%.

Note that 4.25% is a much higher yield than 10 year treasurys (around 3.8%, last I checked), and way more than Total Bond (around 3.3%?). And Traditional is a lot less risky than Total Bond.

That being the case, I'd change my recommendation. If I were in your shoes, I would postpone the consolidation/simplification step, and instead monitor the rate on your particular vintage(s), and the yield on Total Bond. If and when you reach a crossover point where the yield on Total Bond is higher, then I would pull the rollover trigger.
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Re: tiaa vs total bond

Postby tibbitts » Wed Jan 06, 2010 1:59 pm

pablolo wrote:thank you for your input. I have about 50k in each ira at tiaa-cref. my current vintage rate is 4.25% pablo

I was assuming 3%. You'd be crazy to give that 4.25% up.
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Postby pablolo » Wed Jan 06, 2010 11:07 pm

thanks again. I have been in the tiaa traditional for a while. they told me my average yield is 4.25%. iwill stay put for now. pablo
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Postby House Blend » Thu Jan 07, 2010 11:39 am

Hmm. The facts just don't seem to add up for me. It seems unlikely that you could be earning 4.25% from Traditional in an IRA if you've "been in it for a while", when the only way this could be happening is if the entire balance was invested during July-Sep of 2008.

(It's not impossible, if < 1.5 years counts as "a while", and the money arrived by a rollover or transfer from something else.)

Another plausible explanation is that you also have Traditional in an RA (not an IRA), and the 4.25% quoted to you by T-C included these other accounts.

I would recommend doing a calculation yourself. Login at T-C, and record the amount you have in Traditional in your two IRA's. (And are they really IRA's? Not RA's?) Repeat the experiment 7 days later (for example). Compute the ratio R of the old and new balances.

Then compute R^(365/7). That's the annualized rate you're getting.

Edited to add: if you are getting 4.25%, then the ratio R should be about 1.00080. In other words, if you have $10K in Traditional, then after 1 week, your balance should be about $8 higher.
Last edited by House Blend on Thu Jan 07, 2010 12:08 pm, edited 1 time in total.
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Postby peter71 » Thu Jan 07, 2010 11:52 am

A lot of folks on the TIAA board "flipped" their liquid Traditional balances in Summer '08 (moving from TRAD to MM then back to TRAD) though they've now made it tougher to do -- IIRC if you move back and forth within 90 days (?) you revert to your old rates.
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Postby pablolo » Fri Jan 08, 2010 2:00 pm

Peter, I flipped also during that time period. pablolo
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Postby beardsworth » Fri Jan 08, 2010 2:42 pm

peter71 wrote:A lot of folks on the TIAA board "flipped" their liquid Traditional balances in Summer '08 (moving from TRAD to MM then back to TRAD) though they've now made it tougher to do -- IIRC if you move back and forth within 90 days (?) you revert to your old rates.


120 days, Pete. See the first text paragraph beneath the TIAA Traditional rate chart here: http://www.tiaa-cref.org/performance/re ... nuity.html

I miss the times when rates were increasing, and (for all T–C accounts except the Retirement Annuity, which has its own separate liquidity rules), it was possible to transfer holdings out of Traditional, let them sit in Money Market for a day or two, then transfer all of them back to be treated as "new" contributions at a better rate. Sigh. Well, this was probably creating havoc with TIAA's portfolio planning, so I understand the business reasons for disallowing it (although I would not have chosen the opaque language TIAA itself uses, i.e., that the new policy is "designed to mitigate the effects of disintermediation"). . . . If I understand the new policy (and I'd welcome correction if I don't), if you switch out of Traditional and interest rates don't rise within 120 days, or if rates had already risen before the switch out but then fall again during the 120 days, at least you can transfer back before the 120 days and recover original vintage rates, and the only thing lost is the interest on the money (or the difference in interest between Traditional and Money Market) while it was "out" of Traditional.

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Postby House Blend » Fri Jan 08, 2010 3:37 pm

pablolo wrote:Peter, I flipped also during that time period. pablolo


Well done. I hereby withdraw my skepticism. :)
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