AA help- TIAA CREF mess!

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Topic Author
szmaine
Posts: 109
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AA help- TIAA CREF mess!

Post by szmaine »

I really need help sorting out my TIAA Cref asset allocation mess.

Emergency funds = yes

Debt: mortgage, 100k @ 4.78%, 24yrs left, currently exploring refi options.

Tax Filing Status: married joint, 1 child

Tax Rate: 10% Fed, 6% State

Age: 45

Desired Asset allocation: 60/40

Intl allocation: 10-20

Current portfolio: 5 figures

401a (inactive, previous employer)and 403b (current employer) : I have been looking into rolling the 401a over to Vangard but have learned that I can't touch the employer until I'm 55 so it's better to ignore the AA in that plan for now since I will probably be doing a partial rollover but am still up in the air - I want to hold those RE fund for now, more on this at the end of message.

Overall asset allocation of both plans together is: (some have no tickers)
TIAA Traditional: 45 (getting an overall rate of 4.3%)
Stock: 27
RealEstate: 27

401a:
Tiaa Traditional, 59%
Cref Stock, 11%
Real Estate, 31%

403b (current plan):
Tiaa Traditional: 36%, cost unknown
Stock:38%, 0.47
Real Estate: 26%, 1.01


My plan choices are:

CREF Stock, 0.47
Global Equity, 0.49
Growth, 0.45
Equity Index, 0.42
International Equity (TRERX), 0.78
Large Cap Value (TRLCX), 0.72
Mid-Cap Growth (TRGMX), 0.74
Mid-Cap Value (TRVRX), 0.71
Small Cap Equity (TRSEX), 0.78

Real Estate, 1.01

Money Mkt, .42

CREF Bond Mkt, 0.44
CREF Inflation Linked Bond, 0.44

Cref Social Choice, 0.43
Lifecycle Funds, example 2040 (TCLOX), 0.72

More info here if needed: http://www.tiaa-cref.org/public/perform ... index.html


TIAA Traditional: I was extremely nervous of losing money when I began contributing to my retirement plans, hence the huge TIAA Traditional allocation. I really want out of that and feel that I have been WAY to conservative due to my ignorance, I need to do some catch up here. I have begun the 10yr reinvestment process of those funds in my current 403b but am unsure of where to put it - I recently changed my future contributions to 50/50 Mid-Cap Growth/International Equity but am really not experienced enough to know if that is a very good idea. I have some contributions to other options but the current percentage of AA was too small to bother listing.

Real Estate: Why do I have so much? In Oct 2010, after stocks had pretty much rebounded but the RE had just finished tanking, I scraped some profit (only a few thousand) of the old (2001-2005) plan's Stock and put it into the RE and I redirected 100% of my crrent plan contributions into it until about 3 months ago. Maybe that's considered market timing here, but I figured I was buying low - anyway, I need to hold onto that and so will not be using any of that to rebalance any time soon.

So all I have to work with is the $ from the traditional over 10yrs and future contributions.

I need stocks - but which ones? The International Equity seems like it might be another good low buy opportunity...

In terms of rebalancing, I'm not sure of how I should view my current AA... should I think of the TIAA Traditonal as my current bond portion until I get it out of there?
How should I think of the Real Estate portion?

Thanks for your help with my MESS!!
Mortgasm
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Re: AA help- TIAA CREF mess!

Post by Mortgasm »

Bleh, I'm biased. I hate TIAA-Cref's line-up. They have raised costs and added nothing over the past 10 years. I used to be a fan, but I'm not anymore.

Best funds imo:

TIAA annuity/stable value - probably the only reason to keep some is this, although I think in a 403b you get slightly higher rates but less liquidity.
Equity Index - Ridiculous that they charge .44 ER for a large cap index fund, but it's better than the other large cap funds.
Real Estate - I've invested in this on and off throughout the years, and remain skeptical. But it merits consideration.

I would stay away from the actively managed funds and get your equities from the index. And I would try to rollover stuff elsewhere as soon as you can.
Topic Author
szmaine
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Joined: Wed Feb 08, 2012 9:03 am

Re: AA help- TIAA CREF mess!

Post by szmaine »

Hi Mort-
Yes, the more I read here and elsewhere, the more frustrated I have become with my employers options. But my awakening is been recent and ongoing...

The good part is that my employer match is 10% with my 4% contribution. Recently I increase my contribution by an addition 3% to create some room in my tax bracket to launch a Roth at Vanguard from the old employer plan but was frustrated to learn that my employer contribution a locked in for another 10 yrs. But it has recently enter my mind that I could start both a Roth and an IRA with the partial rollover then direct any additional contributions to both of those and only continue with the 4% at TIAA Cref to get that huge employer contributions.

Right now I feel like a squirrel running around in the middle of the road.
Call_Me_Op
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Location: Milky Way

Re: AA help- TIAA CREF mess!

Post by Call_Me_Op »

szmaine wrote:
TIAA Traditional: I was extremely nervous of losing money when I began contributing to my retirement plans, hence the huge TIAA Traditional allocation. I really want out of that and feel that I have been WAY to conservative due to my ignorance, I need to do some catch up here.

Thanks for your help with my MESS!!
Not sure I understand. The market has been flat over the past 10 years. TIAA Traditional has probably increased by ~ 40%. Not sure you have missed any great opportunity - unless you just5 started investing in March 2009.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
Topic Author
szmaine
Posts: 109
Joined: Wed Feb 08, 2012 9:03 am

Re: AA help- TIAA CREF mess!

Post by szmaine »

Call_Me_Op wrote:
szmaine wrote:
TIAA Traditional: I was extremely nervous of losing money when I began contributing to my retirement plans, hence the huge TIAA Traditional allocation. I really want out of that and feel that I have been WAY to conservative due to my ignorance, I need to do some catch up here.

Thanks for your help with my MESS!!
Not sure I understand. The market has been flat over the past 10 years. TIAA Traditional has probably increased by ~ 40%. Not sure you have missed any great opportunity - unless you just5 started investing in March 2009.
I have looked at it that way too. But I didn't/couldn't have known that when I was doing it. And I didn't know at all until recently about the liqudity restrictions which is what frustrates me the most. If I had educated myself at an earlier date I suppose I'd have switch to putting it in bonds.
But moving forward with a 20yrs horizon it seems I may be severely limiting my self and feel I need to up the game a bit.

But your words are encouraging and it helps to get the perspective of others especially since I have never looked into it before. It must be hard for people who are so financially savy to grasp the mind set of the deeply ignorant - if you don't understand what we think it's probably because we don't ourselves - that's why I'm here. :happy
sscritic
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Re: AA help- TIAA CREF mess!

Post by sscritic »

Let me speak up for the conservative. If you started 40 years ago putting 50% into Traditional and 50% into Stock, you would have a good retirement today. The key is how much you save. I am retired now, so my choices will be different from yours, but here is what I do:

1) I only use the annuities. I used one of the retirement class mutual funds for a while, but T/C "merged" (a euphemism for eliminated) it.

2) I use Traditional, Stock, Bond, Inflation-Linked Bond, and Real Estate. Note that I have a taxable account at Vanguard that holds most of my stock holdings; T/C is my tax-deferred account that is used primarily for fixed income plus the RE.

When you look at costs, you have to compare them to choices you have, not to choices you don't have. Would your rather have tax-deferred money at T/C in Inflation-Linked Bond with an ER of 0.44% or Vanguard's Inflation-Protected Securities with ERs of 0.22% or 0.11% ($50k min) in a taxable account without the tax-deferral?

Since you didn't mention any other accounts, I have to assume you have none. If you do have other accounts, then you have to look at the options you have in them and cross compare.

For example, you have two accounts of equal size:
Account A: asset class 1 ER = 0.4% ; asset class 2 ER = 0.6%.
Account B: asset class 1 ER = 0.3% ; asset class 2 ER = 0.4%.

You want to put 1/2 your money into each asset class. Since you can't put it all in Account B, you have to choose one of the funds in Account A. I think the choice is clear. The fact that asset class 1 in Account A is more expensive than the same asset class in Account B is irrelevant.

About Traditional: If you are 20 years from retirement, why does a nine year one day withdrawal restriction bother you? Even if you retire today, you would hope to be retired for more than nine years and one day. Ally Bank is paying 1.74% on a five year CD; Traditional in an RA pays 3.0%, but money you deposited in 2008 is paying 5%. That sounds good to me. If you are overloaded with Traditional, send your new contributions to other asset classes. I hope you didn't do a Transfer Payout Annuity on all your Traditional; if you decide you want to put some back, you will get the current low rates.
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

sscritic wrote: When you look at costs, you have to compare them to choices you have, not to choices you don't have. Would your rather have tax-deferred money at T/C in Inflation-Linked Bond with an ER of 0.44% or Vanguard's Inflation-Protected Securities with ERs of 0.22% or 0.11% ($50k min) in a taxable account without the tax-deferral?

Since you didn't mention any other accounts, I have to assume you have none. If you do have other accounts, then you have to look at the options you have in them and cross compare.

For example, you have two accounts of equal size:
Account A: asset class 1 ER = 0.4% ; asset class 2 ER = 0.6%.
Account B: asset class 1 ER = 0.3% ; asset class 2 ER = 0.4%.

You want to put 1/2 your money into each asset class. Since you can't put it all in Account B, you have to choose one of the funds in Account A. I think the choice is clear. The fact that asset class 1 in Account A is more expensive than the same asset class in Account B is irrelevant.
Thanks, sscritic. You are right, that is what I have been doing in my mind! I will quit thinking like that until I actually have more accounts to deal with.
About Traditional: If you are 20 years from retirement, why does a nine year one day withdrawal restriction bother you? Even if you retire today, you would hope to be retired for more than nine years and one day. Ally Bank is paying 1.74% on a five year CD; Traditional in an RA pays 3.0%, but money you deposited in 2008 is paying 5%. That sounds good to me. If you are overloaded with Traditional, send your new contributions to other asset classes. I hope you didn't do a Transfer Payout Annuity on all your Traditional; if you decide you want to put some back, you will get the current low rates.
No, I actually haven't even submitted the paper work yet. I was so sure that I should do it (MENTALLY LOCKED IN) that I portrayed it that way in my post here. I have been so sure that everyone would agree with my view that it's too conservative....it is true that I have the higher paying vintages in there (2001-2010, Sept 2010 was the last time I had any going there)...so if there is anymore cheer-leading to leave the TIAA Tradational where it is I'd be interested to hear all the views. Say I do leave it alone - do I treat it as my bond allocation?

And how should I think of the Real Estate?
livesoft
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Re: AA help- TIAA CREF mess!

Post by livesoft »

This is definitely not a mess, but I think your thinking about this is a mess. So my advice is to relax and take it one step at a time. Here are the steps I suggest that you take one at a time.

1. With any regard to what you currently have nor at what financial institution that you have it at (i.e. ignore anything and everything about TIAA-CREF), what is the is exact asset allocation that you want right now?

When you have answered that simply and fully, I will come back with another step. I know you already hinted at your desired AA, but I was not convinced that's what you really, really want, so be sure to convince me when you reply. Thanks!
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tibbitts
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Re: AA help- TIAA CREF mess!

Post by tibbitts »

I don't understand why you're unhappy with your situation. If you're locked into TIAA traditional you're getting a higher rate than you could get from almost any bonds, with a guaranteed floor, and you've beaten equities basically ever since you've been investing.

What vintages do you own? I'll bet the majority of bogleheads would buy them from you if they could.

While TIAA-CREF has become far less competitive than it once was, and basically doubled the expenses on some of its funds, it's still far from the worst retirement deal out there.

Paul
Last edited by tibbitts on Sun Mar 04, 2012 11:40 am, edited 1 time in total.
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

livesoft wrote:This is definitely not a mess, but I think your thinking about this is a mess. So my advice is to relax and take it one step at a time. Here are the steps I suggest that you take one at a time.

1. With any regard to what you currently have nor at what financial institution that you have it at (i.e. ignore anything and everything about TIAA-CREF), what is the is exact asset allocation that you want right now?

When you have answered that simply and fully, I will come back with another step. I know you already hinted at your desired AA, but I was not convinced that's what you really, really want, so be sure to convince me when you reply. Thanks!
:D Ok.

I am assuming that you actually might think that my risk tolerance is much lower than I have indicated...
I do think 60/40 is reasonable, I am 45.
I tested out as 70/30 on the tiaa-cref asset allocation test but will confess to consciously steering every answer up one notch.
I was able to stay the course through 2008-9, in fact all I did was try to take advantage of assets that had fallen by buying more.

I am a different person than when I began contributing to my first retirement plan at 35 yrs old.
I had waddled off to grad school in Newfoundland, 7 mos pregnant at the ripe old age of 31, lived on about 15k a year for 3 yrs. Good move -it doubled my income. The point is I am not timid, far from it - it's just that if you've lived on that amount (think second hand clothes, ground pork goulash) and grown up in a low income household - it takes a while for your mind to snap out of it.

Convinced?

ps. I'm not anxious - I just tend tackle things this way (obsessively with a vengeance) - that's how you end up quitting your job and running off to grad school 3 months before your baby is due.
tibbitts
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Re: AA help- TIAA CREF mess!

Post by tibbitts »

szmaine wrote:
livesoft wrote:This is definitely not a mess, but I think your thinking about this is a mess. So my advice is to relax and take it one step at a time. Here are the steps I suggest that you take one at a time.

1. With any regard to what you currently have nor at what financial institution that you have it at (i.e. ignore anything and everything about TIAA-CREF), what is the is exact asset allocation that you want right now?

When you have answered that simply and fully, I will come back with another step. I know you already hinted at your desired AA, but I was not convinced that's what you really, really want, so be sure to convince me when you reply. Thanks!
:D Ok.

I am assuming that you actually might think that my risk tolerance is much lower than I have indicated...
I do think 60/40 is reasonable, I am 45.
I tested out as 70/30 on the tiaa-cref asset allocation test but will confess to consciously steering every answer up one notch.
I was able to stay the course through 2008-9, in fact all I did was try to take advantage of assets that had fallen by buying more.

I am a different person than when I began contributing to my first retirement plan at 35 yrs old.
I had waddled off to grad school in Newfoundland, 7 mos pregnant at the ripe old age of 31, lived on about 15k a year for 3 yrs. Good move -it doubled my income. The point is I am not timid, far from it - it's just that if you've lived on that amount (think second hand clothes, ground pork goulash) and grown up in a low income household - it takes a while for your mind to snap out of it.

Convinced?

ps. I'm not anxious - I just tend tackle things this way (obsessively with a vengeance) - that's how you end up quitting your job and running off to grad school 3 months before your baby is due.
A few years ago there were actually posts that suggested that your RE fund was like TIAA fixed - it just payed twice as much. Now that that problem has been fixed, lots of people count it as equity, at least to the extent they treat REITs as equity. So arguably you're pretty close to 60/40 now, albeit a somewhat undiversified 60. You can shift money out of RE at will and traditional (bonds) are pretty close to where you want them. But you can't shift out of RE, because you say you can't... apparently. Expense ratios on CREF funds are marginally higher than VG but still below almost everybody else.

So again, I don't think most people are seeing a problem here.

Paul
livesoft
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Re: AA help- TIAA CREF mess!

Post by livesoft »

szmaine wrote:I do think 60/40 is reasonable, I am 45.
60/40 means what? What percent of US stocks? What percent of foreign stocks? What percent in small cap (US & foreign)? Of the fixed income, what percent in total bond? TIPS? Guaranteed? Also please consider TREA as different from stocks and bonds.

As an example, my desired asset allocation is 31% US stocks, 31% foreign stocks, 31% fixed income, and 7% TREA. Of the 62% stocks, I want half to be in large-cap and half in mid-small cap. Of the 31% bonds, I want at least 10% (of TOTAL portfolio) in short-term duration bonds.

How about you? I am trying to get you beyond 60/40, so that we can go on to the next step.
Last edited by livesoft on Sun Mar 04, 2012 12:03 pm, edited 1 time in total.
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sscritic
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Re: AA help- TIAA CREF mess!

Post by sscritic »

I have to admit that I am not an AA fetishist. When I started 40 years ago, I put 1/2 of my money into Traditional and 1/2 into Stock. I had no concept of rebalancing, so whatever I put in stayed where I put it. The Stock portion was soon above 50%, but my contributions stayed as they were. When the market tumbled, my Stock portion fell, but never went below 50%. It is now, but that's only because I have a taxable account, and I got my mind totally screwed up by reading sites like Morningstar and this one. I think I would be just as well off if I had never heard about TIPS or real estate or international or any of those other things that make life and investing complicated.
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

Thanks Paul. That helps.
I think a great part of my confusion has been trying to determine exactly what I do have for an allocation vis a vie Boglehead guidelines.

What I am gathering so far is that:

TIAA traditional = bond portion, and at a rate that most seem to think is pretty good and I should leave alone. Vintages are 2001-2010.
RE=equity. I have been completely unsure of how to think of it. No I'm not touching that for a while - I spent a whole year buying low (hopefully).

livesoft, looking forward to your comments too.
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

livesoft wrote:
szmaine wrote:I do think 60/40 is reasonable, I am 45.
60/40 means what? What percent of US stocks? What percent of foreign stocks? What percent in small cap (US & foreign)? Of the fixed income, what percent in total bond? TIPS? Guaranteed? Also please consider TREA as different from stocks and bonds.

As an example, my desired asset allocation is 31% US stocks, 31% foreign stocks, 31% fixed income, and 7% TREA. Of the 62% stocks, I want half to be in large-cap and half in mid-small cap. Of the 31% bonds, I want at least 10% (of TOTAL portfolio) in short-term duration bonds.

How about you? I am trying to get you beyond 60/40, so that we can go on to the next step.
I don't know enough to know, I guess. I've been doing some reading and it seems that it's wise to have a greater international allocation these days due to the shifting global economy. I've read that mid-caps are a good compromise between lg and small cap. I know I should have bonds but I have so much TIAA Traditional already, so I'm not sure if I should be including them or not.

But really I am such a novice that I am not sure. If we went to a chinese restaurant with 100 dishes on the menu I'd probably just get some lo mein since all the descriptions would be meaningless to me. Maybe my lo mein option here is just the CREF Stock but I want to try some new flavors.

But if you insist, I am inclined toward: 50/50 US/International of the 60% stocks. I think the mid-cap growth is good, I am confused about growth vs value funds as I think I read here that having both was pulling in two directions.

You see, you are quite correct that my thinking is confused. I apologize if I'm overly unwieldy at the moment I'm sure I can be brought into focus with a little coaching. Feel free to point me at some more reading material if you weary of explanations. I have Bogleheads Guide to Retirement - perhaps I need a simple asset allocation book too?
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

sscritic wrote:I have to admit that I am not an AA fetishist. When I started 40 years ago, I put 1/2 of my money into Traditional and 1/2 into Stock. I had no concept of rebalancing, so whatever I put in stayed where I put it. The Stock portion was soon above 50%, but my contributions stayed as they were. When the market tumbled, my Stock portion fell, but never went below 50%. It is now, but that's only because I have a taxable account, and I got my mind totally screwed up by reading sites like Morningstar and this one. I think I would be just as well off if I had never heard about TIPS or real estate or international or any of those other things that make life and investing complicated.
Oh, good - someone who actually does know first hand why I'm confused. That exactly what I did and where I'm coming from.
But I am finding it fun (in a confusing sort of way) - I do love a learning curve of any kind.
And I'm not sure at all that I will be better off - if it turns out that what I have doing is accidentally 100% perfect, then fine - but I want to understand it better.
livesoft
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Re: AA help- TIAA CREF mess!

Post by livesoft »

Hmmm, I see. I would not read that Retirement book first. I would read something else. Take a look at the reading list and see if anything else pops out at you.
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Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

tibbitts wrote:I don't understand why you're unhappy with your situation. If you're locked into TIAA traditional you're getting a higher rate than you could get from almost any bonds, with a guaranteed floor, and you've beaten equities basically ever since you've been investing.

What vintages do you own? I'll bet the majority of bogleheads would buy them from you if they could.

While TIAA-CREF has become far less competitive than it once was, and basically doubled the expenses on some of its funds, it's still far from the worst retirement deal out there.

Paul
I don't understand this. My overall rate for TIAA Trad is 4.3%
The T/C bond market has a significantly higher annual return. http://www.tiaa-cref.org/public/perform ... /1006.html
Since I would not be actually buying a bond but investing in a fund wouldn't I be getting those rates on what ever money I had put in there? Rather than be locked into the rate that was going at whatever time it was purchased?

Sorry, if I am missing something fundamental here, I assume that I must be missing something given your reaction.
I have googled bonds and read the Wiki but can see how this is so.
Thanks for the help!!
sscritic
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Re: AA help- TIAA CREF mess!

Post by sscritic »

szmaine wrote: I don't understand this. My overall rate for TIAA Trad is 4.3%
The T/C bond market has a significantly higher annual return. http://www.tiaa-cref.org/public/perform ... /1006.html
Since I would not be actually buying a bond but investing in a fund wouldn't I be getting those rates on what ever money I had put in there? Rather than be locked into the rate that was going at whatever time it was purchased?

Sorry, if I am missing something fundamental here
The bond fund return consists of interest payments plus changes in bond values based on changes in interest rates. As interest rates fall, bond prices rise (or, if you think the market determines rate, higher bond prices make interest rates fall). The annual return you are seeing in the bond fund is not all interest. When interest rates rise (bond prices fall), the change in price will be negative. Then the returns will be lower than the interest earned. Your traditional will never go down, unlike the bond fund. Pick any period of the graph that you linked to. Do the values ever go down? All the time.
tibbitts
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Re: AA help- TIAA CREF mess!

Post by tibbitts »

szmaine wrote:
tibbitts wrote:I don't understand why you're unhappy with your situation. If you're locked into TIAA traditional you're getting a higher rate than you could get from almost any bonds, with a guaranteed floor, and you've beaten equities basically ever since you've been investing.

What vintages do you own? I'll bet the majority of bogleheads would buy them from you if they could.

While TIAA-CREF has become far less competitive than it once was, and basically doubled the expenses on some of its funds, it's still far from the worst retirement deal out there.

Paul
I don't understand this. My overall rate for TIAA Trad is 4.3%
The T/C bond market has a significantly higher annual return. http://www.tiaa-cref.org/public/perform ... /1006.html
Since I would not be actually buying a bond but investing in a fund wouldn't I be getting those rates on what ever money I had put in there? Rather than be locked into the rate that was going at whatever time it was purchased?

Sorry, if I am missing something fundamental here, I assume that I must be missing something given your reaction.
I have googled bonds and read the Wiki but can see how this is so.
Thanks for the help!!
The best prediction of bond fund return over the duration of a fund is probably the current yield. Look at the current yield - not the historical return, but the yield - of an intermediate-term bond fund today, and you're looking at something around 2%, depending on the corporate/government bond allocation within the fund. So you could guess that over 6 years or so you might reasonably guess that you'll earn an average of 2% a year. That's just a guess, but you're looking at a moderately probable 2%, certainly with a possibility of more or less (and possibly much less if you don't hold to at least the fund's duration), vs. a guaranteed 3% or more for TIAA traditional. Everywhere on the forum you find people asking "is there any reason to buy a bond fund today???", due to what seems like a relatively dismal outlook for bonds. A lot them, many of whom don't have access to traditional, would take your traditional over any bond fund.

Paul
Topic Author
szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

sscritic wrote:The bond fund return consists of interest payments plus changes in bond values based on changes in interest rates. As interest rates fall, bond prices rise (or, if you think the market determines rate, higher bond prices make interest rates fall). The annual return you are seeing in the bond fund is not all interest. When interest rates rise (bond prices fall), the change in price will be negative. Then the returns will be lower than the interest earned. Your traditional will never go down, unlike the bond fund. Pick any period of the graph that you linked to. Do the values ever go down? All the time.
Thanks for your patient answer sscritic!! I am seeing that it's no wonder that I'm getting feedback that puzzles me- it seems I should have a better grasp of the basics or people will not even understand my questions. I was starting to wonder why some folks post AA Help threads and get straight forward recommendations but I am not.

EDIT; case in point, I found this good link, re: ignorance of the unwashed masses - http://www.bankrate.com/brm/news/sav/20021216a.asp

but needed the proding to find the right words to find it, otherwise you get alot of useless ads and rote definitions.
Last edited by szmaine on Sun Mar 04, 2012 3:24 pm, edited 1 time in total.
DickBenson
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Re: AA help- TIAA CREF mess!

Post by DickBenson »

Here is a link to a description of the traditional account that may be of interest to you.

http://www.tiaa-cref.org/ucm/groups/con ... 011136.pdf

Dick
sscritic
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Re: AA help- TIAA CREF mess!

Post by sscritic »

szmaine wrote: Thanks for your patient answer sscritic!! I am seeing that it's no wonder that I'm getting feedback that puzzles me- it seems I should have a better grasp of the basics or people will not even understand my questions. I was starting to wonder why some folks post AA Help threads and get straight forward recommendations but I am not.
Some people want to learn what to do, others want someone else to tell them what to do. Both livesoft and I come from the "teach them to fish" school, not the "give them a fish" school. You yourself stated an interest in learning.
But I am finding it fun (in a confusing sort of way) - I do love a learning curve of any kind.
That's the attitude I like. I could give you some numbers (say 30% Traditional, 10% Inflation-Linked Bonds, 50% Stock, and 10% Real Estate Account), but they would be meaningless for you without more understanding. The key is that you don't have to do anything tomorrow morning at 8 am. You have time to read, learn, and ask more questions. Livesoft suggested perhaps another book from the reading list; have you found one that interests you? In my case, I don't read books on investing, but I read here and at the Morningstar TIAA-CREF forum. Have you been to their site?
http://socialize.morningstar.com/NewSoc ... 00044.aspx

Good luck with your learning. Remember, whatever allocation you come up with in the next several months will not lock you in forever. In the very short term, if you are convinced that Traditional and Real Estate are over-represented, you can send all your new contributions to Stock. Also, other than the Traditional, you can switch any of these around at any time (there are some limits on how often, and Real Estate now restricts shifts in if you already have over $150,000, but there are ways around this limitation - I think new contributions are excepted).
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szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

sscritic wrote:
szmaine wrote: Livesoft suggested perhaps another book from the reading list; have you found one that interests you? In my case, I don't read books on investing, but I read here and at the Morningstar TIAA-CREF forum. Have you been to their site?
http://socialize.morningstar.com/NewSoc ... 00044.aspx

Good luck with your learning. Remember, whatever allocation you come up with in the next several months will not lock you in forever. In the very short term, if you are convinced that Traditional and Real Estate are over-represented, you can send all your new contributions to Stock. Also, other than the Traditional, you can switch any of these around at any time (there are some limits on how often, and Real Estate now restricts shifts in if you already have over $150,000, but there are ways around this limitation - I think new contributions are excepted).

Thank you, ss- I appreciate your time-
Well, I think I'll get The Intelligent Asset Allocator: How to Build Your Portfolio to Maximize Returns and Minimize Risk, William Bernstein - I know it's a bit more advanced, but if I have the lingo down I can usually answer my own questions on Google.

I'll check the T/C forum, thanks.
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House Blend
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Re: AA help- TIAA CREF mess!

Post by House Blend »

szmaine,

My suggestions:

1. Ignore the actively managed T-C mutual funds.

2. Limit your selections to a subset of
CREF Stock
TIAA Real Estate
CREF Inflation Linked-Bond
CREF Bond
TIAA Traditional

Although CREF stock is actively managed, it is a closet index fund, and covers the world equity markets at a 70/30 US/ex-US ratio. (At least until the next time they change benchmarks.) This is well within the range of what passes for normal around here. Given that you consider yourself a newbie at asset allocation, best not to fuss with individual components of world equity. This will help keep things simple.

While I think Traditional is a useful fixed income option, IMO its main flaw (in RA/GRA contracts) is that you can't rebalance out of it when equities tank. It's hard to do the Boglehead-approved Buy-Hold-Rebalance dance if all of your
fixed income is Traditional in an RA/GRA.

Regarding the 9 year transfer payout option, remember that it's not all or nothing. You can transfer out a fraction of the total, and can redirect where each of the 10 payments go if you change your mind. Also, chances are, between the old 401a and the new 403b, one of them has "worse" vintages than the other. If you use a partial TPA, you might limit it to one account.

I think 25% TIAA RE is at the high end for someone seeking advice. No doubt there are some people who have much higher allocations to TIAA RE. A few of them may even know what they are doing, but probably all of them are the type that don't ask for advice.

If you are going to stake that much in RE, you should decide in advance what your policy will be the next time it appears that TIAA Real Estate is crashing down. Will you exit? How will you decide when to exit? What will you buy instead? Be sure you understand the risks and rules governing this account; there's nothing else like it.

Hope this helps.
sscritic
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Re: AA help- TIAA CREF mess!

Post by sscritic »

House Blend wrote: 1. Ignore the actively managed T-C mutual funds.

2. Limit your selections to a subset of
CREF Stock
TIAA Real Estate
CREF Inflation Linked-Bond
CREF Bond
TIAA Traditional
House Blend:

What a brilliant post!
[those are exactly the annuity accounts I use (I did previously mention I only use the annuities, not the mutual funds).]
Great minds and all that. :)
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szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

House Blend wrote:szmaine,

My suggestions:

1. Ignore the actively managed T-C mutual funds.

2. Limit your selections to a subset of
CREF Stock
TIAA Real Estate
CREF Inflation Linked-Bond
CREF Bond
TIAA Traditional

Although CREF stock is actively managed, it is a closet index fund, and covers the world equity markets at a 70/30 US/ex-US ratio. (At least until the next time they change benchmarks.) This is well within the range of what passes for normal around here. Given that you consider yourself a newbie at asset allocation, best not to fuss with individual components of world equity. This will help keep things simple.

While I think Traditional is a useful fixed income option, IMO its main flaw (in RA/GRA contracts) is that you can't rebalance out of it when equities tank. It's hard to do the Boglehead-approved Buy-Hold-Rebalance dance if all of your
fixed income is Traditional in an RA/GRA.

Regarding the 9 year transfer payout option, remember that it's not all or nothing. You can transfer out a fraction of the total, and can redirect where each of the 10 payments go if you change your mind. Also, chances are, between the old 401a and the new 403b, one of them has "worse" vintages than the other. If you use a partial TPA, you might limit it to one account.

I think 25% TIAA RE is at the high end for someone seeking advice. No doubt there are some people who have much higher allocations to TIAA RE. A few of them may even know what they are doing, but probably all of them are the type that don't ask for advice.

If you are going to stake that much in RE, you should decide in advance what your policy will be the next time it appears that TIAA Real Estate is crashing down. Will you exit? How will you decide when to exit? What will you buy instead? Be sure you understand the risks and rules governing this account; there's nothing else like it.

Hope this helps.
Thanks HB, you all have been very helpful. I have alot to digest and even more to learn. It has been a good perspective taking exercise.
I do not mean to maintain the level of RE investment....My allocation at the beginning of it's slide was only around 10% then- no big deal. I am a novice but I can read and I was aware that it was a mainly a panic driven sell off and so I felt pretty good about larding it up. I am still hoping to do a little partial rollover/Roth conversion to Vanguard at some point this year with the old plan but thought I'd wait until later in the year- that'll probably take care of a fair chunk of it.

Thanks to everyone for all the help and patient explanations.
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Boglenaut
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Re: AA help- TIAA CREF mess!

Post by Boglenaut »

Mortgasm wrote:Bleh, I'm biased. I hate TIAA-Cref's line-up. They have raised costs and added nothing over the past 10 years. I used to be a fan, but I'm not anymore.
+1 Agree! But my employer of 18 years ago has a contract that won't let me roll over to VG. Bah!
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House Blend
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Re: AA help- TIAA CREF mess!

Post by House Blend »

sscritic wrote:
House Blend wrote: 1. Ignore the actively managed T-C mutual funds.

2. Limit your selections to a subset of
CREF Stock
TIAA Real Estate
CREF Inflation Linked-Bond
CREF Bond
TIAA Traditional
House Blend:

What a brilliant post!
[those are exactly the annuity accounts I use (I did previously mention I only use the annuities, not the mutual funds).]
Great minds and all that. :)
I started to mention that I was in agreement with your post upthread, but left it out. I figured that they don't ban people for plagiarism around here. :happy
Valuethinker
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

szmaine wrote:
TIAA Traditional: I was extremely nervous of losing money when I began contributing to my retirement plans, hence the huge TIAA Traditional allocation. I really want out of that and feel that I have been WAY to conservative due to my ignorance, I need to do some catch up here. I have begun the 10yr reinvestment process of those funds in my current 403b but am unsure of where to put it - I recently changed my future contributions to 50/50 Mid-Cap Growth/International Equity but am really not experienced enough to know if that is a very good idea. I have some contributions to other options but the current percentage of AA was too small to bother listing.

Real Estate: Why do I have so much? In Oct 2010, after stocks had pretty much rebounded but the RE had just finished tanking, I scraped some profit (only a few thousand) of the old (2001-2005) plan's Stock and put it into the RE and I redirected 100% of my crrent plan contributions into it until about 3 months ago. Maybe that's considered market timing here, but I figured I was buying low - anyway, I need to hold onto that and so will not be using any of that to rebalance any time soon.

So all I have to work with is the $ from the traditional over 10yrs and future contributions.

I need stocks - but which ones? The International Equity seems like it might be another good low buy opportunity...

In terms of rebalancing, I'm not sure of how I should view my current AA... should I think of the TIAA Traditonal as my current bond portion until I get it out of there?
How should I think of the Real Estate portion?

Thanks for your help with my MESS!!
Just about everything in this post tells me *why* you are in a mess, from your post you have not sorted out your own risk/ return tolerance and you are making decisions on 'good buying opportunity' and 'cheap' and 'I made a few thousand here'.

OK fine. We've all been there. But you need to take a deep breath, step back and think about why you are investing, what your time horizon is, and your *true* ability to take risk without panicking or changing your asset allocation.

Words like 'cheap/ expensive/ good buying opportunity' just don't figure in sane asset allocation (except niggling around the edges). They are not the place to start.

Hence for example your very large desired allocation to RE. These are the thoughts of a person who, overexposed, tends to panic out when it is low, and double up when it is high (even if that is not what you did, success speculating has reinforced that within you). FWIW 10% in TIAA RE annuity is no bad thing-- more than that, in my view, is very risky (any REIT/ quoted RE stock fund, x2 on that advice, if not x4).

International stocks 'good buying opportunity'. You sound like my broker.

SIt back, think about what outcome you want. How much risk you feel you can take. Look at those volatility charts the last few years for different assets (up as well as down)-- they are pretty scary.

You have got to pull your emotions out of this, and also the language/ thought pattern of 'made money on that/ cheap/ good buying opportunity'. Investing is a long game, best characterized by setting an asset allocation pattern, and then complete sloth and neglect.
Last edited by Valuethinker on Mon Mar 05, 2012 4:57 am, edited 1 time in total.
JimInIllinois
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Re: AA help- TIAA CREF mess!

Post by JimInIllinois »

tibbitts wrote:A few years ago there were actually posts that suggested that your RE fund was like TIAA fixed - it just payed twice as much. Now that that problem has been fixed, lots of people count it as equity, at least to the extent they treat REITs as equity.
TREA is a unique investing opportunity in that it has very low short-term fluctuation, mostly driven by the %5 of assets in REIT stocks, and smooth long-term price trends that allowed many people to get out at the top and get back in at the bottom, of which there have been only one of each in the entire life of the fund. This is nothing like stocks, where years of growth can disappear in five minutes of trading. These outflows can be disruptive to the fund, which is why they pay the much larger traditional account (which also owns real estate directly) for a liquidity guarantee, make you sell by phone, and don't let you transfer in above $150K.

http://www.tiaa-cref.org/public/perform ... index.html is a nice graphing tool where you can compare $10K invested in TREA to all of your other TIAA-CREF options except traditional. Be sure to look at multiple time periods to really see the differences.
Valuethinker
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

House Blend wrote:
sscritic wrote:
House Blend wrote: 1. Ignore the actively managed T-C mutual funds.

2. Limit your selections to a subset of
CREF Stock
TIAA Real Estate
CREF Inflation Linked-Bond
CREF Bond
TIAA Traditional
House Blend:

What a brilliant post!
[those are exactly the annuity accounts I use (I did previously mention I only use the annuities, not the mutual funds).]
Great minds and all that. :)
I started to mention that I was in agreement with your post upthread, but left it out. I figured that they don't ban people for plagiarism around here. :happy
Indeed an allocation of:

30% TIAA Traditional (for utter safety)
10% TIAA inflation linked bond (in case unexpected inflation takes off)
10% TIAA RE (ditto, plus the long term risk-return profile)
50% CREF stock (for growth but risk and volatility)

would just about do it for an investor in mid 40s depending on lots of other factors. You could arguably ditch the inflation linked bond (warning: non Boglehead Market Timing comment) and wait for real interest rates to rise (as they will presumably do, at some point in the future).

I'd be wary of suggesting anyone go more than 10% TIAA RE (a bet on one fund, one manager, one asset class (which is not bonds nor equities)) or 60% CREF stock (since that can drop 50% in 12 months, and we can find data showing bigger drops than that, losing 30% of your portfolio is a big hit for most people-- and rapid recovery is not what happened in the 1930s nor the 1968-1979 period, nor in Japan post 1990).
JimInIllinois
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Re: AA help- TIAA CREF mess!

Post by JimInIllinois »

Valuethinker wrote:I'd be wary of suggesting anyone go more than 10% TIAA RE (a bet on one fund, one manager, one asset class (which is not bonds nor equities)).
I agree with this. I am 25% TIAA RE personally only because I check it every couple of weeks and am willing to bail out again if I see a decline starting that isn't caused by the market-priced REIT component of the account. Overall I'm age-in-bonds counting TIAA RE as bonds.
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Re: AA help- TIAA CREF mess!

Post by The Wizard »

I have roughly the same mix of T-C options available to me from my employer's plan.
Step one is to determine the target percentage of funds you want in stocks vs non-stock. For me, it's 52% stocks at my age of 62 with retirement possibly later this year.

Within that 52%, you'll need to determine which stock funds you want. CREF Stock is my smallest holding with larger, roughly equal amounts in the two midcap funds and the international equity fund. Note: each of those four equity funds has some percent in international stocks; check the fund facts pdf file to find out how much.

The 48% in non-stocks is where it gets tricky compared to folks not in the T-C family. Majority of my non-stock $$ is in TREA which is a unique low-volatility account which needs to be monitored for the next major downturn. I have smaller amounts in the two bond funds and in TIAA Trad.
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Mortgasm
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Re: AA help- TIAA CREF mess!

Post by Mortgasm »

You should never prefer Cref Stick over Equity index. It's 5bp more expensive and has no alpha to show for it.
The Wizard
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Re: AA help- TIAA CREF mess!

Post by The Wizard »

Mortgasm wrote:You should never prefer Cref Stick over Equity index. It's 5bp more expensive and has no alpha to show for it.
Never is a pretty strong word.
CREF Stock (not Stick) has 28.58% International equity included, while Equity Index has less than 1%. This tends to explain why CREF Stock's ER is slightly higher (0.47% vs 0.42%) and also why it is up 11.4% YTD where Equity Index is up 9.6%.
The international component can certainly go the other way as well...
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szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

Valuethinker wrote:You have got to pull your emotions out of this, and also the language/ thought pattern of 'made money on that/ cheap/ good buying opportunity'. Investing is a long game, best characterized by setting an asset allocation pattern, and then complete sloth and neglect.
Hi Thanks for the feedback- But I think a little too much is being inferred about my state of mind here due to the language you quote. I haven't actually done much of anything yet other than make a colossal public display of my ignorance and confusion. :D

The greatest hurdle to my understanding was certainly my confusion over bonds vs. TIAA Traditional - now because of this thread I suddenly LOVE my TIAA Traditional and am trying to grasp why I would need any bonds at all (although I hear what some folks are saying about interest rates going up and or inflation.) Also I didn't know what to make of my RE allocation.

So I am trying to develop an AA plan that is based some reasonable principles and do just as you say, forget it. Other than setting up my AA once with each employer, I have only ever moved assets from one place to another 1x in the old plan to RE after it had bottomed out, and the only time I have ever redirected my current contributions is 2x, 1x to take advantage of the RE slump and 1x to quit doing it. I actually was rather uncomfortable both times and would really rather not do any of that which is how I come to land on your collective doorstep - when I quit adding to the RE I didn't know where to go with it since I couldn't tell what my AA actually was. I don't think I'm prone to running out of anything in a panic, my contributions had been going in as 30%Traditional/60%Stock/10%RE from when I started with the current plan in 2005 right up until Oct 2010 when I decided to jump into the RE.(OK, I admit I would continue find it tempting to invest more in something that has gone way down).

Anyway, I feel I have a clearer understanding now of how I might approach moving forward towards a good AA plan. I will keep my TIAA traditional. I certainly could move all the old plan RE assets out of there right now without any great qualms - that would bring my RE holding down to 15% overall, if I just put it in Cref Stock (and forget all the other options) that will give me something like 45% fixed/39% stock. Then I could used future contributions to flesh out the stock and bond allocation. What do folks think of that? and would 10% bonds in addition to my TIAA Traditional be reasonable.
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Re: AA help- TIAA CREF mess!

Post by The Wizard »

szmaine wrote: ...Anyway, I feel I have a clearer understanding now of how I might approach moving forward towards a good AA plan. I will keep my TIAA traditional. I certainly could move all the old plan RE assets out of there right now without any great qualms - that would bring my RE holding down to 15% overall, if I just put it in Cref Stock (and forget all the other options) that will give me something like 45% fixed/39% stock. Then I could used future contributions to flesh out the stock and bond allocation. What do folks think of that? and would 10% bonds in addition to my TIAA Traditional be reasonable.
You also need to figure out how you're going to rebalance your T-C accumulation from time to time, between stocks and non-stocks mainly.
I use the bond funds for that and keep my Trad and TREA largely untouched. This is because it's more difficult to get money out of Trad and TREA in some cases, whereas transfers to/from the bond funds are simplistic.
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Valuethinker
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

szmaine wrote:
Valuethinker wrote:You have got to pull your emotions out of this, and also the language/ thought pattern of 'made money on that/ cheap/ good buying opportunity'. Investing is a long game, best characterized by setting an asset allocation pattern, and then complete sloth and neglect.
Hi Thanks for the feedback- But I think a little too much is being inferred about my state of mind here due to the language you quote. I haven't actually done much of anything yet other than make a colossal public display of my ignorance and confusion. :D
I apologize if I was too harsh. We get a lot of posters here who drift in and talk that way. Either they are convinced by our approach, or they leave.
The greatest hurdle to my understanding was certainly my confusion over bonds vs. TIAA Traditional - now because of this thread I suddenly LOVE my TIAA Traditional and am trying to grasp why I would need any bonds at all (although I hear what some folks are saying about interest rates going up and or inflation.) Also I didn't know what to make of my RE allocation.
On RE, a default of 10% is no bad thing. The right number is probably between 0% and 10%.

On TIAA Trad I am no expert (not USian) but it looks like a good fund to me: a degree of guaranteed returns.

Returns will tend to lag bond funds, up and down.
So I am trying to develop an AA plan that is based some reasonable principles and do just as you say, forget it. Other than setting up my AA once with each employer, I have only ever moved assets from one place to another 1x in the old plan to RE after it had bottomed out, and the only time I have ever redirected my current contributions is 2x, 1x to take advantage of the RE slump and 1x to quit doing it. I actually was rather uncomfortable both times and would really rather not do any of that which is how I come to land on your collective doorstep - when I quit adding to the RE I didn't know where to go with it since I couldn't tell what my AA actually was. I don't think I'm prone to running out of anything in a panic, my contributions had been going in as 30%Traditional/60%Stock/10%RE from when I started with the current plan in 2005 right up until Oct 2010 when I decided to jump into the RE.(OK, I admit I would continue find it tempting to invest more in something that has gone way down).
This is what I mean about sounding like you are market timing. Look at Japan in 1995, did buying something that had 'gone a long way down' help you? No. Emphatically not. Rebalance yes, but rebalance to a target.
Anyway, I feel I have a clearer understanding now of how I might approach moving forward towards a good AA plan. I will keep my TIAA traditional. I certainly could move all the old plan RE assets out of there right now without any great qualms - that would bring my RE holding down to 15% overall, if I just put it in Cref Stock (and forget all the other options) that will give me something like 45% fixed/39% stock. Then I could used future contributions to flesh out the stock and bond allocation. What do folks think of that? and would 10% bonds in addition to my TIAA Traditional be reasonable.
In principle you are down the right track, I must admit as an external reader it would be much easier if you spelt it out:

Trad- 30%
RE - 10%

etc.
dalerobk
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Re: AA help- TIAA CREF mess!

Post by dalerobk »

Mortgasm wrote:You should never prefer Cref Stick over Equity index. It's 5bp more expensive and has no alpha to show for it.
Yeah, I'm not sure why everyone is recommending an active fund (CREF Stock versus Equity Index). I use Equity Index as my domestic stock fund with T-C. It's the Russell 3000, so it's basically a TSM fund (at least it represents 98% of the TSM, so it's close enough). I'm really shocked at people recommending Stock over what is basically a TSM (Equity Index). I would use Equity Index for the domestic stock allocation and one of the two international funds for the international allocation.
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szmaine
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Re: AA help- TIAA CREF mess!

Post by szmaine »

Valuethinker wrote: I apologize if I was too harsh. We get a lot of posters here who drift in and talk that way. Either they are convinced by our approach, or they leave.
No apology needed - I didn't experience it as harshness at all and could see how you got that feeling. I think it's a common phenomena with someone leaning a new lingo -they speak clumsily and don't understand the full connotations of their words to the initiated.
This is what I mean about sounding like you are market timing. Look at Japan in 1995, did buying something that had 'gone a long way down' help you? No. Emphatically not. Rebalance yes, but rebalance to a target.
That happened outside of my time frame so I have no awareness of it other than having heard of Japan's "lost decade". But I see what you mean - I may have been lulled into some dangerous thinking by the rapid rebound of the only crash I have ever known (the 2001 decline was only a couple of months after I contributed my first dollars ever so it barely registered) - I will keep your word in mind if I feel this temptation again.
In principle you are down the right track, I must admit as an external reader it would be much easier if you spelt it out:
Trad- 30%, RE - 10%, etc.
Ok. Just by moving the RE funds would results in:

Trad - 45%
Stock - 40%
RE - 15%
I cannot reduce the Trad very quickly with out losing better vintages, 1st in 1st out I think - but if it is my bond portion why would I need to?
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Re: AA help- TIAA CREF mess!

Post by sscritic »

szmaine wrote: I cannot reduce the Trad very quickly with out losing better vintages, 1st in 1st out I think - but if it is my bond portion why would I need to?
The details are a little trickier than that. If you are not of RMD age, the first money out of Traditional in a 403(b) is from the "grandfathered" amounts* (pre-1987). All other money comes out proportionally from all vintages.
Transfers and withdrawals are paid pro-rata from each Vintage.
* grandfathered amounts are not subject to RMD before age 75, but any withdrawals in excess of your RMD comes from your grandfathered amounts. If your RMD this year is zero because you are 45, all your withdrawal will come from your grandfathered amounts. Then again, you may not have any grandfathered amounts.
Valuethinker
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

szmaine wrote:
Valuethinker wrote: I apologize if I was too harsh. We get a lot of posters here who drift in and talk that way. Either they are convinced by our approach, or they leave.
No apology needed - I didn't experience it as harshness at all and could see how you got that feeling. I think it's a common phenomena with someone leaning a new lingo -they speak clumsily and don't understand the full connotations of their words to the initiated.
Understood. Successful investing is about overwriting your natural emotions and biases. See the excellent book 'Why Smart People Make Big Money Mistakes' by Thomas Gilovich. Well worth a kindle download and read.

Or to misquote Michael Herr's 'Dispatches' (Despatches), one of the great books of the latter 20th century, 'stock markets. Stock markets. We've all been there'.
This is what I mean about sounding like you are market timing. Look at Japan in 1995, did buying something that had 'gone a long way down' help you? No. Emphatically not. Rebalance yes, but rebalance to a target.
That happened outside of my time frame so I have no awareness of it other than having heard of Japan's "lost decade". But I see what you mean - I may have been lulled into some dangerous thinking by the rapid rebound of the only crash I have ever known (the 2001 decline was only a couple of months after I contributed my first dollars ever so it barely registered) - I will keep your word in mind if I feel this temptation again.
[/quote]

Always try to find a relevant fund or index on Morningstar (or Vanguard) and run it back as far as you can before any investment decision.

And then zoom in, look at peak to trough, trough to peak.

And ask yourself: can I live with this? Can I hold my nerve not to chase performance at the top, or panic out at the bottom?

The top (of say 5) posters here is Nisiprius. He is past a genius at deploying these charts from M* to understand, for example, the risks of holding bonds v. stocks. See his many posts.

If you look at the chart for a High Yield Bond fund, or a REIT index fund, for example, you have a different understanding of the risk of those asset classes.

The greatest test of any investor is a multi year bear market. At the bottom, investors will be crashing out of the asset class. And Business Week will have a cover 'The Death of Equities'. The Economist will ask 'Can oil go to $5 per barrel?'.

Or conversely someone will publish a book 'Dow 36,000'. And lots more sober and reasoned people will make pretty convincing bull cases for equities (commodities, real estate etc. etc.).

In 1979 I had schoolteachers who were speculating in commodities. In the 1980s, it was grad school students in computer science buying gold stocks.

In principle you are down the right track, I must admit as an external reader it would be much easier if you spelt it out:
Trad- 30%, RE - 10%, etc.
Ok. Just by moving the RE funds would results in:

Trad - 45%
Stock - 40%
RE - 15%
I cannot reduce the Trad very quickly with out losing better vintages, 1st in 1st out I think - but if it is my bond portion why would I need to?
[/quote]

Presumably you don't need the money for 15+ years?

Well, you are pretty near the optimum asset allocation. New contributions could fund building up a small bond position, over time, you could move Trad into bonds (as percentages). But NO HURRY!

I worry if you make transfers out of Trad (as opposed to simply making no new contributions) you will lose something. What I do not know because I do not really understand Trad (being non USian) although I have a sense it really is a very clever product.

At your age, I would be closer to 10% RE and 50% stock. In fact in your shoes I could be 40% Trad, 10% bonds*, 50% stocks. But that is simply preference. It is IMPOSSIBLE to get this right ex post (after the fact) based on ex ante (before the fact) judgements. Real Estate (TIAA) has lots of theoretical and practical attractions, but it's one fund, in one asset class, managed by one manager-- all of which gives me some jitters.

My suggestion is, however, considerably more volatile than 40% stocks/ 15% RE. On a day to day basis.

I would then 'rebalance' largely by directing my new contributions to whichever subsector was underweight. Revisiting this decision periodically, and not selling to rebalance more than once a year, say.

Franco Modigliani, Nobel Prize Winner and one of the founders of modern finance, split his holdings 50% bond 50% stocks. And in fact he may have used TIAA Trad (presumably he was in TIAA as an American professor). Giving the enormous virtues of outrageous simplicity.

And remember the AA pledge 'I am powerless before the volatility of financial stock markets....'

* I'd rather be in TIPS bonds than straight bonds. But, right now, US TIPS pay horrible yields. That is NOT a Boglehead way of looking at the world. I want TIPS to pay at least 2% real yields (right now the long TIPS pay 0.8% and the shorter ones negative expected real returns) before I would start telling people to buy them again.
Last edited by Valuethinker on Mon Mar 05, 2012 12:00 pm, edited 2 times in total.
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House Blend
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Re: AA help- TIAA CREF mess!

Post by House Blend »

szmaine wrote:The greatest hurdle to my understanding was certainly my confusion over bonds vs. TIAA Traditional - now because of this thread I suddenly LOVE my TIAA Traditional and am trying to grasp why I would need any bonds at all (although I hear what some folks are saying about interest rates going up and or inflation.) Also I didn't know what to make of my RE allocation.
You don't, assuming part of your plan is to not rebalance the next time equities crash.

But rebalancing is part of Boglehead orthodoxy. So if you buy into that, I do recommend that part of your fixed income includes a fund that you can exchange out of easily without signing new contracts and mailing in paperwork.
Anyway, I feel I have a clearer understanding now of how I might approach moving forward towards a good AA plan. I will keep my TIAA traditional. I certainly could move all the old plan RE assets out of there right now without any great qualms - that would bring my RE holding down to 15% overall, if I just put it in Cref Stock (and forget all the other options) that will give me something like 45% fixed/39% stock. Then I could used future contributions to flesh out the stock and bond allocation. What do folks think of that? and would 10% bonds in addition to my TIAA Traditional be reasonable.
Probably ok, but I would listen to Valuethinker regarding limits on RE allocation. While you are building up a bond allocation with new money, I would treat the RE money as available for rebalancing into stock on the theory that if equity crashes, there will be a delay before effects are seen in TIAA RE.

And keep in mind that you can transfer out of RE only once per calendar quarter.

Here's a numerical example to think about how rebalancing might play out.

Your target allocation is 50% stock. You have 100K total, so 50K stock.
Stocks drop 20% and everything else is flat.
You now have 40K stock out of 90K total, about 45%.
Typical Boglehead reaction: "time to rebalance".
To get back to 50%, you need to transfer 5K from bonds to stock.

So with a 10% allocation to bonds, you can ride out that storm.
Two such drops would more or less wipe out your bonds.
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Re: AA help- TIAA CREF mess!

Post by The Wizard »

Valuethinker wrote: Franco Modigliani, Nobel Prize Winner and one of the founders of modern finance, split his holdings 50% bond 50% stocks. And in fact he may have used TIAA Trad (presumably he was in TIAA as an American professor). Giving the enormous virtues of outrageous simplicity.
Yeah, but that's how ALL of us did it back in the 70s and before. Those were the two funds available: Trad and CREF Stock, that's it.
The situation is more enlightened in the present day...
Attempted new signature...
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

The Wizard wrote:
Valuethinker wrote: Franco Modigliani, Nobel Prize Winner and one of the founders of modern finance, split his holdings 50% bond 50% stocks. And in fact he may have used TIAA Trad (presumably he was in TIAA as an American professor). Giving the enormous virtues of outrageous simplicity.
Yeah, but that's how ALL of us did it back in the 70s and before. Those were the two funds available: Trad and CREF Stock, that's it.
The situation is more enlightened in the present day...
I would wager no one here has Franco Modigliani's insight into financial markets. It's not always true professors make the best investors (hah!) but FM was not just making a virtue out of a necessity: he had a quite profound insight into the indeterminacy of financial markets and the tradeoff between the risk free asset and the market and between expected returns and outcomes.

I don't know where that interview is recorded, but I have read it. His basic line was 'when markets go up, I am glad to be in stocks. When they go down, I am glad to be in bonds. Therefore I own 50% in each'.

Some people, on some subjects, are gifted with wisdom.
Last edited by Valuethinker on Mon Mar 05, 2012 11:55 am, edited 1 time in total.
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Re: AA help- TIAA CREF mess!

Post by Valuethinker »

sscritic wrote:
szmaine wrote: I cannot reduce the Trad very quickly with out losing better vintages, 1st in 1st out I think - but if it is my bond portion why would I need to?
The details are a little trickier than that. If you are not of RMD age, the first money out of Traditional in a 403(b) is from the "grandfathered" amounts* (pre-1987). All other money comes out proportionally from all vintages.
Transfers and withdrawals are paid pro-rata from each Vintage.
* grandfathered amounts are not subject to RMD before age 75, but any withdrawals in excess of your RMD comes from your grandfathered amounts. If your RMD this year is zero because you are 45, all your withdrawal will come from your grandfathered amounts. Then again, you may not have any grandfathered amounts.
On the grounds that I really have zero comprehension of this stuff

Is there therefore an advantage/ disadvantage to making withdrawals from the one v. the other?
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Re: AA help- TIAA CREF mess!

Post by manuvns »

Mortgasm wrote:Bleh, I'm biased. I hate TIAA-Cref's line-up. They have raised costs and added nothing over the past 10 years. I used to be a fan, but I'm not anymore.

Best funds imo:

TIAA annuity/stable value - probably the only reason to keep some is this, although I think in a 403b you get slightly higher rates but less liquidity.
Equity Index - Ridiculous that they charge .44 ER for a large cap index fund, but it's better than the other large cap funds.
Real Estate - I've invested in this on and off throughout the years, and remain skeptical. But it merits consideration.

I would stay away from the actively managed funds and get your equities from the index. And I would try to rollover stuff elsewhere as soon as you can.
Hmm . i was told by tiaa-cref that with CREF stock, bond, equity etc have the option to annuitize the holding when you retire . Is the higher expense worth the annuity
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Re: AA help- TIAA CREF mess!

Post by House Blend »

manuvns wrote:
Mortgasm wrote:Bleh, I'm biased. I hate TIAA-Cref's line-up. They have raised costs and added nothing over the past 10 years. I used to be a fan, but I'm not anymore.

Best funds imo:

TIAA annuity/stable value - probably the only reason to keep some is this, although I think in a 403b you get slightly higher rates but less liquidity.
Equity Index - Ridiculous that they charge .44 ER for a large cap index fund, but it's better than the other large cap funds.
Real Estate - I've invested in this on and off throughout the years, and remain skeptical. But it merits consideration.

I would stay away from the actively managed funds and get your equities from the index. And I would try to rollover stuff elsewhere as soon as you can.
Hmm . i was told by tiaa-cref that with CREF stock, bond, equity etc have the option to annuitize the holding when you retire . Is the higher expense worth the annuity
Well, if all you have access to are the TIAA and CREF annuities, and funds with even higher expense ratios, you don't have much choice in the matter. (Until retirement or separation, when you have the option to transfer out.)

On the other hand, some of us have access to cheap index funds in addition to the annuities, in which case you don't have to pay the extra expenses of, say, CREF Stock until you reach the point where you want to buy an income stream.

Although some people do use the variable annuities for retirement income, it doesn't seem particularly attractive to me. I'd rather use Traditional for that.
IMO the point of buying an income stream is to reduce uncertainty; layering market risk on top doesn't help.
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Re: AA help- TIAA CREF mess!

Post by szmaine »

But rebalancing is part of Boglehead orthodoxy. So if you buy into that, I do recommend that part of your fixed income includes a fund that you can exchange out of easily without signing new contracts and mailing in paperwork.
Anyway, I feel I have a clearer understanding now of how I might approach moving forward towards a good AA plan. I will keep my TIAA traditional. I certainly could move all the old plan RE assets out of there right now without any great qualms - that would bring my RE holding down to 15% overall, if I just put it in Cref Stock (and forget all the other options) that will give me something like 45% fixed/39% stock. Then I could used future contributions to flesh out the stock and bond allocation. What do folks think of that? and would 10% bonds in addition to my TIAA Traditional be reasonable.
Probably ok, but I would listen to Valuethinker regarding limits on RE allocation. While you are building up a bond allocation with new money, I would treat the RE money as available for rebalancing into stock on the theory that if equity crashes, there will be a delay before effects are seen in TIAA RE.

And keep in mind that you can transfer out of RE only once per calendar quarter.

Here's a numerical example to think about how re-balancing might play out.

Your target allocation is 50% stock. You have 100K total, so 50K stock.
Stocks drop 20% and everything else is flat.
You now have 40K stock out of 90K total, about 45%.
Typical Boglehead reaction: "time to re-balance".
To get back to 50%, you need to transfer 5K from bonds to stock.

So with a 10% allocation to bonds, you can ride out that storm.
Two such drops would more or less wipe out your bonds.
Ok, I see what you are all saying. Let me reiterate...

I need the bonds to re-balance because it's so hard to move Trad and RE is restricted so if I needed it and had already moved some in the same quarter I'd be SOL. It will be hard to create this bond stash quickly with only future contributions. So, I could move the 12% RE in the old plan right to bonds so it's there when I need it for re-balancing instead of putting it into stocks and then having nothing much on hand to re-balance with in the event of a down turn. And I could also take a look at how the Trad will increase say 10 yrs out (with no further current contribution) and choose some portion of it to transfer out to control it's slow but steady push on my desired allocation. I can use my still a bit too high RE allocation to fill in the cracks as I go forward. I am reluctant to touch the current plan RE yet as some large fraction of that is bubble priced and new investment - I can scape off non-principle chunks as they accumulate.

Sound correct? Don't worry I don't mean to do all this in one fell swoop - I'm just verifying that I correctly understand the tools and strategies at my disposal.
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