moving 5% into bonds/stable - TIAA Trad or other?

[fourier]

I am currently at 75/25 equities/bonds with market weight US/ex-US for equities. 80% of my Bonds are in BND and 20% in Total International Bond.

My total portfolio is 1.6M. I am 45 years old. I am probably going to shift to 70/30, as this is about 25-30+ times my yearly expenses, and I am still employed. I want to keep my FI status no matter what happens in the market.

My retirement account has the following options:

Vanguard Long Term Bond
Vanguard Inflation Protected (VIPIX) (seems to be the institutional version of VIPSX)
Total Bond Mark
Total International Bond
TIAA Traditional RC
TIAA Traditional RCP

The obvious thing to do would be to stick with BND. I was also considering putting this 5% chunk in TIAA Trad. I realize this could be illiquid, but this would be a small piece of my fixed income/stable value. I could do any re-balancing with my BND when necessary. Thoughts on this? Is a small chunk of TIAA Trad a good thing for diversification? Thnx.

[crefwatch]

This is partly a "risk tolerance" question. It sounds like you know that RC TIAA Traditional earns a higher interest rate than RCP, but takes 84 months to sell. You can't move money between RC and RCP.

You're a big BND customer. How have you felt about the last three years of BND returns? In TIAA Traditional, your principal does not go up and down with prevailing interest rates. But the product is a "black box" run by a (relatively benign) "big bad insurance company." (Boglehead talk!) Can you stomach not being able to predict or understand what the interest rate set next March for your TIAA Traditional will be?

Do you want to learn about a complex and opaque product, albeit one that has provided hundreds of thousands of people with stable, comfortable retirements? What are the chances that you will NEED to annuitize to have enough cash flow in retirement? TIAA generally gives a better deal than other insurance companies, but if you are annuitizing in less than 20 years, you may not get the best deal TIAA has to offer.

Disclosure: I have six figures in TIAA Traditional, as does my wife. I prefer it to BND.

References:

RC
https://www.tiaa.org/public/investment- ... r=47933637
RCP
https://www.tiaa.org/public/investment- ... r=47933638

What the heck is TIAA?
viewtopic.php?f=2&t=324239
viewtopic.php?f=2&t=366802
CREF:
viewtopic.php?f=1&t=367072

https://www.tiaa.org/public/pdf/underst ... choice.pdf

Why Should I use TIAA Traditional?
viewtopic.php?f=1&t=318503
viewtopic.php?t=315414
www.tiaa.org/public/pdf/compliance/tiaa ... -paper.pdf
https://www.tiaa.org/public/pdf/making- ... rement.pdf

Is TIAA Traditional like a Bond Fund? 2020.2
viewtopic.php?f=1&t=277093
viewtopic.php?t=280858
viewtopic.php?t=335670
viewtopic.php?t=425805

[jebmke]

IMO a 5% sliver isn't going to have a meaningful impact no matter where it goes.

[student]

Personally, I prefer TIAA Traditional over Total Bond. I use it almost exclusively for my fixed income allocation but I running out space in my TIAA pretax so I have to use Total Bond going forward. I like TIAA Traditional since I think it behaves similar to Total Bond but smooth out the curve with long term return slightly below Total Bond. http://collegeretirement.blogspot.com/2 ... -deal.html. The pro is that it never goes down in value (good psychologically) but past data suggests that you do pay a bit for the stability in long term performance. One has to evaluate the trade-off. If one does want to annuitize in the future, long-time TIAA Traditional participants get loyalty bonus. viewtopic.php?t=382600 To learn more about this, I recommend this channel https://www.youtube.com/@TIAAsimplified and this book https://www.amazon.com/Retire-Secure-Pr ... 197&sr=8-1 only $1.99 for the Kindle version.

[bikechuck]

I share Student's perspective. TIAA Traditional made up 1/3 of my Fixed Income during my working years half in a fully liquid SRA and half in an RA that imposed a ten year gradual restriction on withdrawals.

I especially appreciate that the principal balance does not fluctuate inversely with interest rates. I annuitized my RA in my early 70s and will soon need to take RMDs from my SRA. The liquidity restrictions on the RA never bothered me as I had plenty of other sources for any withdrawals that I needed.

[fourier]

Thank you for the thoughtful responses. I have no issue with the 9 year distribution. I would think that is kind of the point in retirement.

The thing I would love to know is how TIAA Trad did during ultra-high inflation in the late 70s and early 80s. It obviously beat the pants off BND over the past decade when interest rates were near 0, but what about when interest rates and inflation are soaring?

I also have no issue with BND over the last 3 years. What did we think was going to happen? And now the payout is solid.

[crefwatch]

One consequence of TIAA Traditional being an insurance product, regulated by the NY State Dept. of Finance, Insurance Division, is that it has much less disclosure than an SEC regulated mutual fund. There is also the difference between ACCUMULATION stage interest rates and PAYOUT ANNUITY interest/payout rates. In addition, the first link below only has results from when there was only one kind of TIAA Traditional, which was "RA". Now that there are about nine, it is very hard to expect statistical rigor from any single table. And state insurance departments are notorious for allowing insurors to classify important data as "proprietary."

TIAA has stated that the interest rate (i.e. accumulation stage, primarily) is ... related ... to the 10-Year Treasury rate. It is not linked, proportional, or directly tied. The word is, "related".

It is my opinion that RC and RCP interest rates are high because TIAA has an imperative to gain customers who do not have a fixed, lifetime minimum guaranteed interest rate. So the high rates are a "sales tool" for Investment Committies and Faculty Senates. However, TIAA says it is because TIAA's expenses are lower in those plans. The reason, of course, includes that there are specific administrative charges collected in RC and RCP plans that are not collected in other plans. TIAA also says that large employers have lower average expenses for them than small employers, which I believe.

There certainly have been two-digit TIAA Trad (RA) rates in my lifetime, when we had two-digit interest rates and high inflation. Here are two past discussions with some relevant charts. Note that the second report is by a poster, not a corporate or government organization.Just saying.

And remember the universal, not just Boglehead advice: Past performance is not a guarantee of future results. To put that another way, you are asking the right questions, but you need to understand that this is not an ordinary fin serv provider or an ordinary product, one that you are used to.

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In answer to your other question, I would say that many people, especially Bogleheads, felt assured that bonds were a diversifying tool, one that meant stocks and bonds would not go down at the same time. And it remains hard to explain to people that bond fund principal value is not fixed. I don't pretend to understand libraries full of "bond theory". But I do understand bond value responses to interest rate changes.