TIAA TRAD as Fixed Income in my AA?

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Brian1995
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TIAA TRAD as Fixed Income in my AA?

Post by Brian1995 » Fri May 25, 2018 12:11 pm

Hello to all,

I'm 43 yo, single, no kid.

My assets are:
- Retirement: 358K total on 403 (b), Roth IRA and taxable account. AA is balanced to conservative for my age : 45 stocks/55 bonds.
- a 420 K house in NJ ; will be paid in full 4 years from now.
- tenured job : approx. 100K/year.
- no student loan or credit card debt.

I have access to TIAA TRAD and I'm considering replacing part of my bond allocation in favor of TIAA TRAD. The goal would be to gain more stability in the Fixed income part of my portfolio in a context of rising interest rates. I don't feel so good about TIAA Real Estate account although I'm looking for more diversification. I don't mind the 10 years repayment rule upon retirement.

My questions:
- how do you feel about replacing part of my bond allocation in favor of TIAA TRAD?
- would you have ALL your fixed income assets invested on TIAA TRAD?
- does it make sense to have intermediate TIPS or intermediate investment grade bonds on top of TIAA TRAD to keep up with inflation?

Thanks to all!

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oldzey
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Re: TIAA TRAD as Fixed Income in my AA?

Post by oldzey » Fri May 25, 2018 12:36 pm

I am tenured as well. 50 years old. No debt. AA is 65% equities, 35% fixed income.

I have all of my fixed income in TIAA TRAD (RA & GSRA).

Pros:
My daily balance never goes down, which helps me sleep well at night.
TRAD can be annuitized.
TIAA is a pretty solid and stable company.
TRAD is reasonably competitive with bond funds: link
TRAD uses "vintages" that classifies contributions by the time periods in which they were made. Vintages are used to determine accumulation and payout rates, which usually increase over time.

Cons:
Part of my TRAD (RA) is subject to the 9 years + 1 day payout rule (which I don't mind).
A bond fund might yield more than TRAD over the long haul.
TRAD is not inflation-adjusted (I currently don't care about TIPS).
TRAD is an annuity contract with TIAA, not an investment like a diversified total bond market index fund.
There is a small, but unlikely chance that TIAA could go bankrupt, with all of my fixed income eggs in one basket.
Last edited by oldzey on Fri May 25, 2018 1:04 pm, edited 1 time in total.
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student
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Re: TIAA TRAD as Fixed Income in my AA?

Post by student » Fri May 25, 2018 12:57 pm

Just a data point. The fixed income portion of my portfolio is essentially 100% TIAA Traditional.

livesoft
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Re: TIAA TRAD as Fixed Income in my AA?

Post by livesoft » Fri May 25, 2018 1:44 pm

I have owned some TIAA TA for more than 30 years. It is now a relatively small portion of my overall portion and less than 10% of my fixed income allocation.

I would not be 100% TIAA TRAD myself. It is good to have when bond fund prices are dropping, but not so good when bond fund prices are recovering. Since bond fund prices have already dropped quite a bit, I think the ship has sailed this time.

Also if one wants to do major rebalancing by using TIAA TA to buy equities, then make sure the version you have will allow that. And it goes both ways: Can you sell TA and buy equities? Can you sell equities and buy TA? Can you sell bond funds and buy TA? Can you sell TA and buy bond funds?

For those who have 100% TIAA TA for their fixed income, now would not be a bad time to rebalance into a total bond market index fund. Such investors have made almost 1.5% (or more) so for in 2018 and thus are ahead of the 2018 performance of a total bond market index fund by about 3.5%. So this would be selling high and buying low which is what one would like to do when rebalancing.

So you can have some TIAA TA to see what it is like, but I don't see any point at this time to make it 100% of one's fixed income assets unless there are no good bond funds available to one.
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John151
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Re: TIAA TRAD as Fixed Income in my AA?

Post by John151 » Fri May 25, 2018 3:02 pm

I wouldn’t want to have all of my fixed-income investments in TIAA Traditional, because it isn’t adjusted for inflation, and it isn’t backed by the federal government. But I have all of my 403(b) account in TIAA Traditional, and it makes up about 25% of my fixed income investments. The rest is in I Bonds, floating-rate EE Bonds, a short-term Treasury fund, and a Vanguard TIPS fund.

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jjustice
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Re: TIAA TRAD as Fixed Income in my AA?

Post by jjustice » Fri May 25, 2018 3:25 pm

livesoft wrote:
Fri May 25, 2018 1:44 pm
I would not be 100% TIAA TRAD myself. It is good to have when bond fund prices are dropping, but not so good when bond fund prices are recovering. Since bond fund prices have already dropped quite a bit, I think the ship has sailed this time.
Traditional may indeed do relatively better when rates are rising and bond prices are falling, but I'm surprised that you think that we are not in a period during which rates will be rising. You think that they topped out when the 10-year Treasury reached 3%? Maybe, but I doubt it.

i don't worry about the direction of interest rates. For the past forty years I've found Traditional to be an excellent all-weather fixed-income investment. I do have IRAs in Wellington and LifeStrategy Growth, which have bond components, but Traditional is my only pure fixed-income investment. It is a sleep-well-at-night fund.

John

livesoft
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Re: TIAA TRAD as Fixed Income in my AA?

Post by livesoft » Fri May 25, 2018 3:34 pm

jjustice wrote:
Fri May 25, 2018 3:25 pm
livesoft wrote:
Fri May 25, 2018 1:44 pm
I would not be 100% TIAA TRAD myself. It is good to have when bond fund prices are dropping, but not so good when bond fund prices are recovering. Since bond fund prices have already dropped quite a bit, I think the ship has sailed this time.
Traditional may indeed do relatively better when rates are rising and bond prices are falling, but I'm surprised that you think that we are not in a period during which rates will be rising. You think that they topped out when the 10-year Treasury reached 3%? Maybe, but I doubt it.
I definitely market-time my bond duration rebalancing. One could not do that with TIAA traditional annuity. I made 0.75% in the past week from buying SPAB last week and selling it this week. I don't need to know when bond prices stop falling; I only need to know they fell too much sometimes. Sure, they will fall more and go up more as people react to news.

In any event, I think you will get a 3% yield from bond funds or more going forward, but that TIAA Trad will be stuck at paying 3% for a while.
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beardsworth
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Re: TIAA TRAD as Fixed Income in my AA?

Post by beardsworth » Fri May 25, 2018 6:49 pm

Brian, that Google search box at the top of the Bogleheads forum page can be your friend. Major aspects of your original post have been discussed here in the past, and therefore you may find the following to be helpful.

https://www.google.com/search?sitesearc ... +income%22

https://www.google.com/search?sitesearc ... nal"+bonds

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jjustice
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Re: TIAA TRAD as Fixed Income in my AA?

Post by jjustice » Fri May 25, 2018 7:13 pm

livesoft wrote:
Fri May 25, 2018 3:34 pm
In any event, I think you will get a 3% yield from bond funds or more going forward, but that TIAA Trad will be stuck at paying 3% for a while.
You must be thinking of Traditional's 3% guarantee. Its actual accumulating rate has been 4% for quite a while, and I would not be surprised to see it go up a bit on June 1. As of 4/30, its 10-year annualized return was 4.14%.

John

Brian1995
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Re: TIAA TRAD as Fixed Income in my AA?

Post by Brian1995 » Sat May 26, 2018 5:17 am

Thanks to all!

Based on this thread and other relevant threads I've read, it looks like it makes sense to have part of my FI invested on Traditional. For rebalancing purposes it would make sense to invest the rest of my FI on investment grade bonds funds + TIPS (to buffer inflation). An alternative to that would be to invest on both the RA and the GSRA version of Traditional since the latter is liquid, which will help with rebalancing. Having 100% of my FI on the RA version of Traditional would not make sense because of the liquidity/rebalancing issue, I think.

Thanks again!

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