Vanguard short term bond fund vs Thrift savings G fund?

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EdwardL
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Vanguard short term bond fund vs Thrift savings G fund?

Post by EdwardL » Thu Jun 18, 2009 5:09 pm

The vanguard short term bond fund – VBISX - is paying more than the gov't G fund is paying but I wonder if anyone thinks it is worth the small "risk" vs what the G fund pays and how it is constructed.

Year to date yield for the G fund is 1.09%
YTD for Vanguard is 1.54%

Following is a synopsis of the G fund:

The G Fund offers the opportunity to earn rates of interest similar to
those of long-term Government securities but without any risk of loss
of principal and very little volatility of earnings.

• The objective of the G Fund is to maintain a higher return than inflation
without exposing the fund to risk of default or changes in market prices.

• The G Fund is invested in short-term U.S. Treasury securities specially
issued to the TSP. Payment of principal and interest is guaranteed by
the U.S. Government. Thus, there is no “credit risk.”

• The interest rate resets monthly and is based on the weighted average
yield of all outstanding Treasury notes and bonds with 4 or more years
to maturity.

• Earnings consist entirely of interest income on the securities.•
Interest on G Fund securities has, over time, outpaced inflation and
90-day T-bills.

The Treasury securities used in the G Fund rate calculation have a weighted average
maturity of approximately10 years.

Your comments?

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grabiner
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Re: Vanguard short term bond fund vs Thrift savings G fund?

Post by grabiner » Thu Jun 18, 2009 6:25 pm

EdwardL wrote:The vanguard short term bond fund – VBISX - is paying more than the gov't G fund is paying but I wonder if anyone thinks it is worth the small "risk" vs what the G fund pays and how it is constructed.

Year to date yield for the G fund is 1.09%
YTD for Vanguard is 1.54%
The year to date numbers are not an indication of future returns. The Vanguard fund gains when interest rates fall and loses when they rise; the G fund does not. The best prediction of future returns is the current yield (as long as the fund holds few bonds likely to default). The short-term bond index fund yield is 2.18%; the G fund yield is based on intermediate-term and long-term Treasury bond yields, which is about 3.5%. Thus you expect a higher return from the G fund.

The F fund has a slightly higher yield than the G fund because it holds corporate bonds, but the higher yield may not be worth the risk of changing interest rates.
Wiki David Grabiner

Topic Author
EdwardL
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G thrift savings vs vanguard short term bonds

Post by EdwardL » Sat Jun 20, 2009 11:52 am

Based on the last response, can anyone disagree that G fund is a much better bet since interest rates can pretty much only go up from here?

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alec
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Re: G thrift savings vs vanguard short term bonds

Post by alec » Sat Jun 20, 2009 12:12 pm

EdwardL wrote:Based on the last response, can anyone disagree that G fund is a much better bet since interest rates can pretty much only go up from here?
Since future moves in interest rates are unknowable, I'd think that the G fund would be superior to virtually all ST gov't bond funds.
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Chuck T
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Post by Chuck T » Sat Jun 20, 2009 12:22 pm

Grabiner provided you excellent advice. If you are looking for a bond fund with little or no risk the G Fund is great.

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Munir
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Re: Vanguard short term bond fund vs Thrift savings G fund?

Post by Munir » Sat Jun 20, 2009 12:44 pm

[quote="grabiner

The year to date numbers are not an indication of future returns. The Vanguard fund gains when interest rates fall and loses when they rise; the G fund does not. The best prediction of future returns is the current yield (as long as the fund holds few bonds likely to default). The short-term bond index fund yield is 2.18%; the G fund yield is based on intermediate-term and long-term Treasury bond yields, which is about 3.5%. Thus you expect a higher return from the G fund.

[/quote]

How about duration? If the higher G fund yield is due to the fact that it holds intermediate and longterm treasuries, would that make it more susceptible to interest rate changes? If rates go up, will its total return still be better than a short term bond fund? I am not familiar with the G fund and my inquiry is a question and not a criticism.

Incidentally, the SEC yield on the more risky Short Term Investment Grade fund is 3.97%.

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Russell
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Re: Vanguard short term bond fund vs Thrift savings G fund?

Post by Russell » Sat Jun 20, 2009 3:08 pm

Munir wrote: How about duration? If the higher G fund yield is due to the fact that it holds intermediate and longterm treasuries, would that make it more susceptible to interest rate changes? If rates go up, will its total return still be better than a short term bond fund? I am not familiar with the G fund and my inquiry is a question and not a criticism.
The duration of the G fund is generally about 1 day. On weekends, it can get up to 3 days (and on holidays, even 4) -- but there is no duration risk, and no credit risk. It's a very nice little fund, for those who have access.

Best, Russell
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booch221
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I never heard of the "G Fund"

Post by booch221 » Sat Jun 20, 2009 3:50 pm

Until today, I never heard of the G Fund. So I had to Google it.

For those of you who don't know:
The G Fund is one of the most popular investment choices for federal employees...The fund, available only to government personnel, allows investors to earn rates of interest similar to those of long-term government securities without any risk of losing principal and with little volatility in earnings.

http://www.washingtonpost.com/wp-dyn/co ... 01262.html

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jiclemens
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g fund

Post by jiclemens » Sat Jun 20, 2009 4:10 pm

some of the best advise I recieved here several years ago by fellow diehards was to first, commit to my asset allocation, then fill up as much of the bond component I could with the G fund. I followed this advise, and have since retired and adjusted my asset allocation a bit for retirement and I have never been disappointed. My TSP account is fully funded into G fund and it balances the rest of my investments nicely, none of which I have had to touch thanks to my CSRS pension. Make good use of G fund and make sure you are out of debt by retirement and you will be comfortable and secure.

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Munir
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G fund

Post by Munir » Sat Jun 20, 2009 4:23 pm

I had never heard of the G fund either. Thank you for educating us about it. Makes me envious of federal employees.

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Dan Kohn
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Re: G fund

Post by Dan Kohn » Sat Jun 20, 2009 8:52 pm

Munir wrote:I had never heard of the G fund either. Thank you for educating us about it. Makes me envious of federal employees.
Please see G Fund in Thrift Savings Plan on the Bogleheads Wiki. And remember that the TSP is available to both current and many former employees of the federal government.
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tarnation
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Post by tarnation » Sat Jun 20, 2009 9:56 pm

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Valuethinker
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Re: G thrift savings vs vanguard short term bonds

Post by Valuethinker » Sun Jun 21, 2009 6:53 am

EdwardL wrote:Based on the last response, can anyone disagree that G fund is a much better bet since interest rates can pretty much only go up from here?
We cannot predict interest rates.

But the G Fund is risk free, yet pays a bond return.

Money market funds are nearly risk free, and yet pay much lower returns.

You should maximize your contributions to G Fund, on that basis.

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