TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

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camillus
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TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by camillus » Tue Jan 30, 2018 12:02 pm

Hi all, quick question.

I am revisiting my asset allocation and have been thinking about using Trad in my wife's 403(b) as my bond allocation as a way to manage the high expense ratios of the offerings there. I have some understanding of Trad, though it is notoriously complex (I have both liquid and illiquid versions, GRA & GSRA). I believe I would be locking-in present interest rates during a time where interest rates may be increasing.

Should I reconsider my plan with Trad? (I am anticipating someone might suggest 50/50, Trad/Total Bond).

Another possibility I'm considering is investing in TIAA's Social Choice R1 fund (QCSCRX). Strangely, the expense ratio for this fund is 65 bp - as low as any index fund offered in my wife's 403(b). (Cref Equity Index is 61, my current target date fund is 69 bp. The money market is outrageously also 60 bp just as another laughable example of how bad TIAA is for R1 institutions.)

This social choice fund seems to have 40% bond/cash, meaning I could balance with other accounts to meet my AA. The "social" aspect is generally appealing to me - though I do not think I would pay a premium to buy socially conscious index funds. In this case though, I seem to be getting the "social" (actively managed) element for free - since I would be paying an outrageous 60 bp ER in an equity fund anyway.

I think I'd like to use one of these two options above, Trad or Social Choice, as a way to manage the high expense ratios across the board in this 403(b). I'm very interested in your feedback. Thank you very much.
Last edited by camillus on Tue Jan 30, 2018 7:39 pm, edited 6 times in total.

ResearchMed
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by ResearchMed » Tue Jan 30, 2018 12:12 pm

camillus wrote:
Tue Jan 30, 2018 12:02 pm
Hi all, quick question.

I am revisiting my asset allocation and have been thinking about using Trad in my wife's 403(b) as my bond allocation as a way to manage the high expense ratios of the offerings there. I have some understanding of Trad, though it is notoriously complex (I have both liquid and illiquid versions, GRA & GSRA). I believe I would be locking in present interest rates during a time where interest rates may be increasing.

Should I reconsider my plan with Trad? (I am anticipating someone might suggest 50/50, Trad/Total Bond).

Another possibility I'm considering is investing in TIAA's Social Choice R1 fund (QCSTRX). Strangely, the expense ratio for this fund is 65 bp - as low as any index fund offered in my wife's 403(b). (Cref Equity Index is 61, my current target date fund is 69 bp. The money market is outrageously also 60 bp just as another laughable example of how bad TIAA is for R1 institutions.)

This social choice fund seems to have 40% bond/cash meaning I could balance in other accounts to meet my AA. The "social" aspect is generally appealing to me - though I do not think I would pay a premium to buy socially conscious index funds. In this case though, I seem to be getting the "social" element for free - since I would be paying an outrageous 60 bp ER in an equity fund anyway.

I think I'd like to use one of these two options and I'm very interested in your feedback. Thank you very much.
We are also wondering about the "locking in low rates" in Trad Ann.

Keep in mind that the "extra" might increase, but I have no idea how to predict that, or if it's at all possible.
It also appears that over time, TIAA collapses some of the vintages, into multi-year groupings, so some of the differences might in the future sort of melt away. Others may be able to see how this affected the very early vintages.

Also, unlike bond funds, the principal in Trad Ann will not decrease in response to interest rate increases, so that's a positive.

We've got a fair amount in Trad Ann, but are waiting (at least a bit) to add more.
It will be interesting to see if the rates change on March 1 (I think this is the annual re-set, which is different from the monthly change).

Apologies if I've described any of the above in any inaccurate way.
It's still a black box to us, in many ways. (Dare I say, a "trusted black box"? :annoyed )

RM
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harmony
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by harmony » Tue Jan 30, 2018 6:08 pm

We’ve used Social Choice Multi-Asset fund to weather through the Great Recession and a few wobbly-bond periods since then. The fixed income and equities are actively managed, but the fund has such a large number of holdings that it may function somewhat like an index fund. In a period of bond uncertainty, we want some active management of our bonds; so we are adding to this fund now. We have done this a couple of times already through the uncertain periods of quantitative easing. Balancing equities and fixed income (even international fixed income), this fund has proven itself to be able to thrive through both bond and equity volatility.

We have vintage TIAA Traditional which we are transferring out of now, via a Transfer Payout Annuity directly into Social Choice Multi-Asset Fund where it is modestly controlled (instead of suddenly vulnerable to daily market whims) until we decide to roll some over or take out an RMD. We are glad to have the guarantees of Traditional, but we find the Social Choice Multi-Asset Fund is much more nimble and understandable to us. This was the first SRI fund which TIAA-CREF offered and we got into it for that reason. We like and keep it for SRI purposes, but even if we weren’t doing the SRI investing, this fund would still be very attractive to us.

Disadvantages Social Choice Multi-Asset Fund? It is hard to re-balance into or out of a balanced fund, but we think it is the perfect fund to mitigate bond indecision. It is the fund to answer these very concerns. When bonds are uncertain, we load into this fund. When bonds are sailing along, we unload some of this fund. We keep it in a tax-deferred account so the taxes are limited by the controlled growth of the bond portion. It has a small percentage (3-4%) of municipal bonds and technically these would be better placed in a taxable account, hardly a good reason not to make use of this unique fund. I am not sure if it is available to everyone.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by LadyGeek » Tue Jan 30, 2018 8:14 pm

This thread is now in the Investing - Help with Personal Investments forum (portfolio help).
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by frazzlefeet » Wed Jan 31, 2018 9:22 am

I wonder if either of you could help me understand TRAD interest rates now. i have a negligible amount in the illiquid version in a 403B which i can no longer contribute to (former employer). My Roth has access to the liquid version with the much lower interest rate; although currently i do not have anything allocated to it. When I looked at it yesterday, i believe it said the rate for contributions to the liquid version now would be 1.45%. This is the total rate, correct? i get confused when it talks about the guarantee plus possible additional.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by The Wizard » Wed Jan 31, 2018 9:46 am

frazzlefeet wrote:
Wed Jan 31, 2018 9:22 am
I wonder if either of you could help me understand TRAD interest rates now. i have a negligible amount in the illiquid version in a 403B which i can no longer contribute to (former employer). My Roth has access to the liquid version with the much lower interest rate; although currently i do not have anything allocated to it. When I looked at it yesterday, i believe it said the rate for contributions to the liquid version now would be 1.45%. This is the total rate, correct? i get confused when it talks about the guarantee plus possible additional.
That 1.45% is the total, yes. Trad minimum in an IRA is 1.0%.

I've rebalanced incrementally a few times the past year, from various TIAA stock funds into restricted Trad paying 4.0% for new money. I'm retired so that's the only "new money" for me.

As time goes on, TIAA will probably raise the crediting rate for the 2016-2018 Trad vintage if general interest rates increase. Stay tuned and we'll find out...
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by camillus » Thu Feb 01, 2018 8:05 am

harmony wrote:
Tue Jan 30, 2018 6:08 pm
Social Choice Multi-Asset Fund... It is the fund to answer these very concerns.
Thanks all, especially harmony. Yesterday I devested from many earth killing corporations. I'm managing my bond allocation as part of this SRI fund. I feel squeaky clean & have a vague sense of moral superiority over the average boglehead.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by student » Thu Feb 01, 2018 8:52 am

Just one data point. I use TIAA Traditional as my fixed income.

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camillus
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by camillus » Thu Feb 01, 2018 10:05 am

student wrote:
Thu Feb 01, 2018 8:52 am
Just one data point. I use TIAA Traditional as my fixed income.
Student, do you have any hesitation with investing in Trad during interest rate increases? I'm not sure if I understand the moving parts.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by The Wizard » Thu Feb 01, 2018 10:27 am

camillus wrote:
Thu Feb 01, 2018 10:05 am
student wrote:
Thu Feb 01, 2018 8:52 am
Just one data point. I use TIAA Traditional as my fixed income.
Student, do you have any hesitation with investing in Trad during interest rate increases? I'm not sure if I understand the moving parts.
New tax deferred money going into Trad the past several months is credited with a 4.0% annual interest rate.
When/if interest rates increase in the future, older Trad vintages will eventually creep upward as investments mature and funds get reinvested...
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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by student » Fri Feb 02, 2018 7:03 am

camillus wrote:
Thu Feb 01, 2018 10:05 am
student wrote:
Thu Feb 01, 2018 8:52 am
Just one data point. I use TIAA Traditional as my fixed income.
Student, do you have any hesitation with investing in Trad during interest rate increases? I'm not sure if I understand the moving parts.
I don't have hesitation during interest rate increases. Based on historical return, TIAA Trad will adjust the interest rate perhaps slowly. I am sure you have seen this before http://collegeretirement.blogspot.com/2 ... -deal.html
So it is similar to TBM except that it smooths out the curve.

About 50% of my TIAA Traditional is liquid and 50% is illiquid.

Part of my decision is based on the desire to have the fixed income portion to be as stable as possible.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by alrick » Fri Feb 02, 2018 7:15 am

On a number of posts I have urged TIAA investors to keep their funds in TIAA/CREF liquid funds so they can be moved out to others such as Vanguard upon retirement. TIAA/CREF contracts are often different with each employer and so are withdrawal processes......it can be very complicated and confusing to many, especially heirs that may not have the knowledge and experience in dealing with these matters. Over the years I have transferred all my TIAA/CREF funds out to Vanguard, except for a relatively small 457(b) that I had with a private college......that technically remains an asset of the college....and is open to be taken should the college declare bankruptcy.

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Re: TIAA 403b R1, managing high ER, Questions re TRAD in rising int rate env & Social Choice

Post by student » Fri Feb 02, 2018 7:24 am

alrick wrote:
Fri Feb 02, 2018 7:15 am
On a number of posts I have urged TIAA investors to keep their funds in TIAA/CREF liquid funds so they can be moved out to others such as Vanguard upon retirement. TIAA/CREF contracts are often different with each employer and so are withdrawal processes......it can be very complicated and confusing to many, especially heirs that may not have the knowledge and experience in dealing with these matters. Over the years I have transferred all my TIAA/CREF funds out to Vanguard, except for a relatively small 457(b) that I had with a private college......that technically remains an asset of the college....and is open to be taken should the college declare bankruptcy.
It is my understanding that for a non-governmental 457 (b), you can take distribution once you left the employer and that it is taxable but not subject to penalty. So if you are worrird about the college going bankrupt, you can start taking distribution or take it in lump sum.

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