Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

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Messner8000
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Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by Messner8000 » Tue Mar 26, 2019 8:10 pm

I’m a fairly new convert to the 3-fund portfolio and love the simplicity. As many prior posts have noted, the G-Fund, which is available to federal government employees, is a great deal – the yield is equal to the average of intermediate-term Treasury bonds, and the value can’t decrease. There seems to be a general consensus that this is a great fund to buy if you have access to it.

My question is whether it makes sense to own any other bond funds if I have access to the G-Fund, and if not, whether it is worth complicating my portfolio by only holding the G-fund.

A few more details. I have a three-fund portfolio and an 80/20 AA (stock/bonds). I'm in my mid-30s. About half of my net worth is in a TSP 401k, invested in a 2050 lifecycle fund, which is currently 11% in the G-Fund. I also have about 5% of my portfolio in Vanguard Total Bond Market Index Fund (VBTLX). I have two questions:

(1) Should I sell all my VBTLX and purchase an equal amount in the G Fund? How can I decide if this is a good decision (I’m a newbie and not good at comparing long term return rates or other financial indicators used to make such a decision)? To state the obvious, if I go this route I would own only stocks in my ROTH IRAs, and all my bonds would be in my 401k. For tax efficiency purposes, my taxable account is already 100% stocks.

(2) If I should sell all the VBTLX, what is the simplest way to make the G-fund purchases given that I am already maxing out my 401k? Should I begin investing in a lifecycle fund with a higher bond allocation? Should I pause my lifecycle fund purchases, purchase just the G-fund until I reach the appropriate AA, and then go back to purchasing the 2050 lifecycle fund?

I hope this makes sense as I’m having a hard time explaining the issue. Basically, I’m just trying to figure out if this is all necessary, or if I should just keep rolling along with my VBTLX. I am happy to try and provide follow-up information that would help folks provide guidance.

Thanks!

pdavi21
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by pdavi21 » Tue Mar 26, 2019 8:32 pm

Short answer is it doesn't matter.

Long answer is G-Fund is super low risk, but pretty low return. A portfolio with only G Fund as bonds should, theorhetically, have slightly more stocks than one with diversified bond funds to match risk and exceed returns. Also, it seems the G Fund may be nerfed at some point in the future.
"We spend a great deal of time studying history, which, let's face it, is mostly the history of stupidity." -Stephen Hawking

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aspirit
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by aspirit » Tue Mar 26, 2019 8:46 pm

No....jmho
Time & tides wait for no one. A man has to know his limitations. | "Give me control of a nation's money and I care not who makes it's laws" | — Mayer Amschel Bauer Rothschild ~

rkhusky
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by rkhusky » Wed Mar 27, 2019 7:22 am

Messner8000 wrote:
Tue Mar 26, 2019 8:10 pm
To state the obvious, if I go this route I would own only stocks in my ROTH IRAs, and all my bonds would be in my 401k. For tax efficiency purposes, my taxable account is already 100% stocks.
This would make rebalancing very difficult. You need one account with both stocks and bonds, preferably a tax-advantaged account.

Note that Total Bond is around 70% Treasuries and 30% corporate bonds. The F Fund has out-performed the G Fund on average over the years, probably due to the extra risk of the corporate bonds. You could replace Total Bond in the Roth with Vanguard's Intermediate Corporate fund (VICSX).

The simplest method would be to just use target date funds in the TSP and Roth. You would need to pick the dates that give you the overall AA that you want, taking into account the stocks in your taxable account.

dcw213
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by dcw213 » Wed Mar 27, 2019 11:02 am

The G Fund is definitely something my wife and I have used for a lot of our fixed income. This recent yield curve inversion, however, proves that it is not always a guaranteed win. Bond prices have rallied and the g fund yield is dropping to levels that are lower than online savings accounts or short term CDs. I will still use it as I like the feature with a solid market yield with no principal risk within a retirement account but compared to the last decade, it is not exactly a perk from a pure yield perspective right now.

robertmcd
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by robertmcd » Wed Mar 27, 2019 11:11 am

If I were to have access to the G fund, I would use it reduce the inflation risk of my overall portfolio. It would also be very effective as a hedge for rising real rates. I would maybe combine it with a very volatile uncorrelated asset to equities.

With something like EDV, VTI, and G fund you could create a very efficient portfolio.

cyborg
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by cyborg » Wed Mar 27, 2019 11:51 am

I’m in the same boat, so here’s my simple solution: do all G until you max out your 20% allocation, then use other IRA. If market crashes in the next few years, you can just rebalance TSP and get some C (index) there. If market does great and you’re now 90/10, get more G to rebalance, if you run out of G in order to make your 80/20 allo then get bonds in IRA or elsewhere

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Messner8000
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by Messner8000 » Wed Mar 27, 2019 4:55 pm

Thank you for all of the replies. My sense from the replies is that there is no clear right or wrong answer, particularly to the extent that the answer depends in part on how much one values simplicity. Since I highly value the simplicity of purchasing $18,500 in my 401k TSP lifecycle fund, as opposed to purchasing some G Fund, then some LifeCycle and having to shift/buy/sell over time, it sounds like the benefit (however that is quantified) of having only the G-fund (if it in fact it is a net benefit) is not dispositive, and that there is nothing all that bad with have a small non-G fund bond position in my other accounts.

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Earl Lemongrab
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Re: Should I Own Any Other Bonds if I Have Access to the Government G-Fund?

Post by Earl Lemongrab » Wed Mar 27, 2019 5:22 pm

This has been hashed over many times. You might want to see this thread?

viewtopic.php?f=1&t=275803

I recommend 50/50 F and G.

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