Should I prefer TIAA Traditional to VBTLX

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monboddo
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Should I prefer TIAA Traditional to VBTLX

Post by monboddo » Wed Sep 11, 2019 4:38 pm

Hi--I know there have been innumerable discussions of TIAA Traditional and what exactly it is, but I have a question that hasn't been asked before (I think!). I have the opportunity in my TIAA account to invest in either (1) Vanguard total bond or (2) one of several kinds of TIAA Traditional (the best available seem to be GRA, with a 10 year withdrawal period, or GSRA, with no limit on withdrawals--but both have a 3% guaranteed minimum rate right now). Is there a reason to prefer the TIAA Traditional for my bond allocation? I know it isn't precisely a bond, and some of the Traditional I have access to have withdrawal limitations, but other commenters have made the Trad sound superior to the total bond fund. Any thoughts are most appreciated!

student
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Re: Should I prefer TIAA Traditional to VBTLX

Post by student » Wed Sep 11, 2019 4:49 pm

I personally use TIAA Traditional almost exclusively as my fixed income investment. I will let my stock funds go on a wide ride but I want my fixed income to be stable. See http://collegeretirement.blogspot.com/2 ... -deal.html

bikechuck
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Re: Should I prefer TIAA Traditional to VBTLX

Post by bikechuck » Wed Sep 11, 2019 4:55 pm

I am retired but I have both more through historical accident than any thoughtful planning on my part. My company moved from TIAA to Lincoln Financial for our retirement program (a dumb move from my perspective). I had the option of keeping the money that I had accumulated with TIAA or moving it. I left it at TIAA and moved all of my TIAA to Traditional and I consider it to be a bond equivalent but in some ways better than bonds because it will not lose money if interest rates increase. Over time my portfolio grew and I had to supplement my TIaa Traditional with a bond fund.

If your company allows both you could invest in both. I am fortunate in that my TIAA Traditional has been paying 4.0% blended (two flavors one paying a bit more than 4.0 and the other a bit less). I might be getting a better rate because I invested this money 15 to 30 years ago and I believe that older vintages are paid a bit higher returns.

livesoft
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Re: Should I prefer TIAA Traditional to VBTLX

Post by livesoft » Wed Sep 11, 2019 5:01 pm

Over the long term TIAA Traditional and VBTLX end up about the same. Since today VBTLX is kicking butt on TIAA TA this year, I think it is probably better to put it into TIAA TA in a kind of "buy low" tactic.

In the end, I don't think it matters. We own both.
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vineviz
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Re: Should I prefer TIAA Traditional to VBTLX

Post by vineviz » Wed Sep 11, 2019 5:07 pm

monboddo wrote:
Wed Sep 11, 2019 4:38 pm
Is there a reason to prefer the TIAA Traditional for my bond allocation? I know it isn't precisely a bond . . . "
I think the important thing to accept is that it isn't like a bond in any way. It's basically a high-yield savings account perpetual CD (i.e. cash).

TIAA Traditional is usually a superior alternative to cash or money market funds, and if you're retired or close enough to retirement to need a cash account then a stable value fund can be a great choice.

Otherwise, a long-term or intermediate-term bond fund is the appropriate choice because of the higher expected returns and superior diversification.
Last edited by vineviz on Thu Sep 12, 2019 6:42 am, edited 1 time in total.
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TropikThunder
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Re: Should I prefer TIAA Traditional to VBTLX

Post by TropikThunder » Wed Sep 11, 2019 6:08 pm

Something to keep in mind with TIAA Traditional is how the crediting rate is determined. TIAA sets the interest rate monthly but only for new contributions. For example, both the GRA and GSRA forms right now are earning 3.00% (which is the guaranteed floor) for new contributions through 09-30. Starting Oct 1, the rate might increase but only for new money. If the rate goes up to 3.25% on Oct 1, contributions you made in Sep will still earn 3.00%.

[I''m oversimplifying, I know. For example the rate for "new" money is only guaranteed until the following March, and the monthly crediting rates, called "vintages", compress in later years but this is close enough for now]

The good thing is that they tell you ahead of time what the interest rate will be for the upcoming month. If you were so inclined, you could decide on a monthly basis whether the rate for new money in TA gives you a better return than new money in a Total Bond fund (which you can only really guess at). When the GRA version was paying 4.00%, it was an easier decision IMO but at 3.00% less of a slam-dunk. It really is a risk-reward trade-off. TA returns are guaranteed (as long as TIAA doesn't go bankrupt) but may lag a bond fund (especially if rates fall). Maybe a good time to insert the finance chestnut that you should take your risks on the equity side, not on the fixed income side.

sal paradise
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Re: Should I prefer TIAA Traditional to VBTLX

Post by sal paradise » Wed Sep 11, 2019 7:46 pm

The current yield on VBTLX is 2.2%. I prefer the guranteed 3% in the fully liquid TRAD over VBTLX.

stlrick
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Re: Should I prefer TIAA Traditional to VBTLX

Post by stlrick » Wed Sep 11, 2019 8:09 pm

The bond allocation of my 403(b) is 80% TRAD, 20% Inflation-Linked Bond Fund. I'm very satisfied with it and don't plan on any changes.

As for your decision to use the GRA or the SGRA, when interest rates rise, the GRA will go up well before the SGRA. If these are retirement accounts, is the 10 year withdrawal period (actually, 9 years and a day) a problem? You probably expect your retirement to be for more than 10 years.

Northern Flicker
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Re: Should I prefer TIAA Traditional to VBTLX

Post by Northern Flicker » Wed Sep 11, 2019 8:17 pm

Either one is fine, but be sure the liquidity/withdrawal restrictions on TIAA Trad won’t be a problem. It is fine to say you have many years until retirement, but what then? TIAA Trad does have a cost-effective annuitization option, however.

A possible strategy would be to hold both by directing new fixed income investment into whichever has the higher yield at the time of the investment.
Risk is not a guarantor of return.

bikechuck
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Re: Should I prefer TIAA Traditional to VBTLX

Post by bikechuck » Wed Sep 11, 2019 8:31 pm

Northern Flicker wrote:
Wed Sep 11, 2019 8:17 pm
Either one is fine, but be sure the liquidity/withdrawal restrictions on TIAA Trad won’t be a problem. It is fine to say you have many years until retirement, but what then? TIAA Trad does have a cost-effective annuitization option, however.

A possible strategy would be to hold both by directing new fixed income investment into whichever has the higher yield at the time of the investment.
As a recent retiree, the ten year withdrawal restrictions do not bother me at all. This is only a part of my diversified portfolio. I am likely to begin taking interest only withdrawals a year or two from now and then switch over to taking RMDs when I must. When I am in my mid to late 70s I will consider annuitizing based on then current interest rates, my physical health and the health of my portfolio at that time.

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willthrill81
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Re: Should I prefer TIAA Traditional to VBTLX

Post by willthrill81 » Wed Sep 11, 2019 9:43 pm

sal paradise wrote:
Wed Sep 11, 2019 7:46 pm
The current yield on VBTLX is 2.2%. I prefer the guranteed 3% in the fully liquid TRAD over VBTLX.
:thumbsup
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Northern Flicker
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Re: Should I prefer TIAA Traditional to VBTLX

Post by Northern Flicker » Wed Sep 11, 2019 11:20 pm

As a recent retiree, the ten year withdrawal restrictions do not bother me at all. This is only a part of my diversified portfolio. I am likely to begin taking interest only withdrawals a year or two from now and then switch over to taking RMDs when I must. When I am in my mid to late 70s I will consider annuitizing based on then current interest rates, my physical health and the health of my portfolio at that time.
My point was just that The OP needs to do the same analysis. I think TIAA Trad is a good product.
Risk is not a guarantor of return.

aristotelian
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Re: Should I prefer TIAA Traditional to VBTLX

Post by aristotelian » Thu Sep 12, 2019 6:13 am

Sure, if you are OK with the 10 year withdrawal period. I have half of our fixed income in the non liquid version. 10 year CDs hit 3% briefly but for the most part haven't come close to the 4% yield of TIAA Traditional.

I do keep some of our fixed income in bond funds in order to Ave liquidity for rebalancing.

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vineviz
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Re: Should I prefer TIAA Traditional to VBTLX

Post by vineviz » Thu Sep 12, 2019 6:46 am

vineviz wrote:
Wed Sep 11, 2019 5:07 pm
monboddo wrote:
Wed Sep 11, 2019 4:38 pm
Is there a reason to prefer the TIAA Traditional for my bond allocation? I know it isn't precisely a bond . . . "
I think the important thing to accept is that it isn't like a bond in any way. It's basically a high-yield savings account perpetual CD (i.e. cash).
A helpful private message pointed out that my original characterization of TIAA Traditional as being like a savings account was off-base. Because the yield for completed contributions doesn't vary, it's much more like a perpetual CD than like a savings account.

I still would treat it like cash in asset allocation, because it is not a marketable security like a bond is, but I know that not everyone would characterize it that way.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

student
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Re: Should I prefer TIAA Traditional to VBTLX

Post by student » Thu Sep 12, 2019 7:27 am

vineviz wrote:
Thu Sep 12, 2019 6:46 am
vineviz wrote:
Wed Sep 11, 2019 5:07 pm
monboddo wrote:
Wed Sep 11, 2019 4:38 pm
Is there a reason to prefer the TIAA Traditional for my bond allocation? I know it isn't precisely a bond . . . "
I think the important thing to accept is that it isn't like a bond in any way. It's basically a high-yield savings account perpetual CD (i.e. cash).
A helpful private message pointed out that my original characterization of TIAA Traditional as being like a savings account was off-base. Because the yield for completed contributions doesn't vary, it's much more like a perpetual CD than like a savings account.

I still would treat it like cash in asset allocation, because it is not a marketable security like a bond is, but I know that not everyone would characterize it that way.
TIAA Traditional is unique and I agree that it is difficult to fit it in either cash or bond. Personally I treat it as inflation-linked bond fund.

aristotelian
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Re: Should I prefer TIAA Traditional to VBTLX

Post by aristotelian » Thu Sep 12, 2019 7:51 am

vineviz wrote:
Thu Sep 12, 2019 6:46 am
A helpful private message pointed out that my original characterization of TIAA Traditional as being like a savings account was off-base. Because the yield for completed contributions doesn't vary, it's much more like a perpetual CD than like a savings account.

I still would treat it like cash in asset allocation, because it is not a marketable security like a bond is, but I know that not everyone would characterize it that way.
I agree with the CD analogy because of the withdrawal restrictions. If I am looking to increase my fixed income, I will compare the yield on TIAA Traditional with 10 year CD's and Treasuries. I almost always end up going with TIAA Traditional.

It is cash-like in that the price does not fluctuate. However, I think referring to it as cash would confuse a lot of people since cash implies liquidity.

dknightd
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Re: Should I prefer TIAA Traditional to VBTLX

Post by dknightd » Thu Sep 12, 2019 8:21 am

livesoft wrote:
Wed Sep 11, 2019 5:01 pm
Over the long term TIAA Traditional and VBTLX end up about the same. Since today VBTLX is kicking butt on TIAA TA this year, I think it is probably better to put it into TIAA TA in a kind of "buy low" tactic.

In the end, I don't think it matters. We own both.
I tend to agree with this. Over the long term it probably does not matter much. TIAA Traditional fluctuates less (always goes up). VBTLX or similar end up in about the same place, but fluctuates more along the way. The TIAA real estate account is also one worth considering. TIAA traditional, and real estate funds, mimic buying and holding various bonds, debt instruments, and real estate. But they allow our relatively small investments to be combined and diversified. I could never afford to own even parts of what they are invested in any other way.

Today I annuitized part of my TIAA traditional holdings. Some are still paying 4.4%. I think TIAA traditional is suitable for the portion you want to annuitize one day. It spreads out the risk and return over many years. The returns may not be huge, which is why you also invest in stocks, but they are pretty reliable. I like reliable to cover my basic expenses. YMMV

I do have some TIAA traditional in my GSRA. It pays "only" 3%. But is very flexible. Pretty safe in my mind. I consider it my high yield tax deferred savings account. I'll be spending out of it between now and when I claim SS at 70.

student
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Re: Should I prefer TIAA Traditional to VBTLX

Post by student » Thu Sep 12, 2019 8:29 am

dknightd wrote:
Thu Sep 12, 2019 8:21 am
I do have some TIAA traditional in my GSRA. It pays "only" 3%. But is very flexible. Pretty safe in my mind. I consider it my high yield tax deferred savings account. I'll be spending out of it between now and when I claim SS at 70.
Yes. If I have $10,000 in taxable that I want to put in a saving account with a small likelihood of using the money and if I have space is to do something similar to the following (a standard on bogleheads): Sell $10,000 in Russell 3000 fund to buy $10,000 TIAA Traditional, buy $10,000 in S&P 500 or other index that is not substantially similar to Russell 3000 in taxable.

dknightd
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Re: Should I prefer TIAA Traditional to VBTLX

Post by dknightd » Thu Sep 12, 2019 8:39 am

aristotelian wrote:
Thu Sep 12, 2019 6:13 am
I do keep some of our fixed income in bond funds in order to Ave liquidity for rebalancing.
Having liquidity for re-balancing is a good thing. So I would never tie up all my "fixed income" in TIAA traditional that was not the flexible kind.

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