G-Fund Related Question

[larmewar]

If I take a federal position within the next few months, I will roll my 401K over into the TSP, mostly into the G-Fund. The rollover would be part of larger portfolio realignment for tax efficiency (little/no change in AA). Since the G-Fund is treasuries, I would shift IRA fixed income away from treasuries. My question is what to shift towards. Fixed income in IRAs is mostly in TBM and Investment Grade Bond Funds. A modest shift to the GNMA fund seems to make sense, but I'm not too sure. Comments/opinions will be appreciated.

Lar

[VictoriaF]

I would start by looking into the assets you currently hold in your 401(k). As you convert these assets into the G-fund, you will need to compensate by holding these asset groups elsewhere.

[stan1]

I could make an argument for anywhere between 50-100% of your fixed income allocation being invested in the G Fund. If you choose to go with less than 100% in the G Fund, filling in with Vanguard's TIPS fund and/or Total Bond (through either F Fund or Vanguard) would make sense.

[White Coat Investor]

Not sure why you'd go to the GNMA fund. If you were wanting a 50% treasuries/50% non-treasuries kind of portfolio, why not use something like the short-term corporate fund. The more I think about it, the more I think having fixed income be mostly treasuries (including TIPS) is the smart way to go, and just take more risk on the equity side (microcap, emerging markets, small value etc).

[baw703916]

I'm not really sure that it's accurate to say that the G Fund is treasuries in the normal sense of the term. Yes, it's invested in a unique type of treasury bonds, but really it behaves more like a stable value fund (with, usually, a higher yield). It differs from "normal" treasuries in that the NAV never changes with interest rates, so if interest rates go up, you will just get a higher yield. With ordinary bonds, you will also get a higher yield, but the market value of your holdings will go down in the mean time.

FWIW, the L Funds (TSP's version of Target Retirement) have allocations to both the G Fund and the F Fund (TBM), with the G Fund share becoming larger as one approaches retirement.

Without knowing the rest of your holdings or which other accounts you would hold bonds in, I can't make a specific recommendation on what your AA should be. But I wouldn't say that the G Fund necessarily makes the treasuries component of TBM redundant, any more than owning TIPS would make owning nominal treasury bonds redundant. The two have very different characteristics.

So, welcome to Club Fed. The TSP really is a nice perk, and it's great that you're planning to make good use of it.

Best wishes,
Brad

[larmewar]

Thanks for the replies. The GNMA fund came to mind because gov't backed mortgages seemed to be the bond sector that would otherwise be missing. I might also eliminate the small, remaining holding in ST Federal.

Lar

[jiclemens]

I was advised several years ago to put all I could of my bond allocation into the G fund and if there was any balance remaining to put that in Inflation Protected. I've had no complaints so far but am frustrated by my lack of understanding of what exactly the G fund is.