TSP bonds?

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fortyofforty
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Re: TSP bonds?

Post by fortyofforty » Thu Mar 15, 2018 6:15 am

tadamsmar wrote:
Wed Mar 14, 2018 11:29 pm
Take a look at the L Fund allocations. The bond holdings are mostly in the G Fund.

The L Fund allocations are set by experts. The L Fund gives you a good idea of how to allocate to bonds, if you want to allocate to bonds.

Whether you should lower risk by allocating to to bond depends on your situation. Some have more than enough money and are comfortable with the risk. Others would be financially or psychologically stressed by a downturn.

You seem to be comfortable with risk. Just make sure your plan is not financially reckless.
The L Fund allocations are indeed set by experts. Very, extremely, highly conservative experts. I have seen on this board criticisms of the allocations to asset classes set by the experts managing the L Funds, based on the assumption that they allocate too small a portion to stocks for long term growth. I imagine it would be a far greater disaster for most L Fund participants to lose money in a prolonged market downturn than not to grow enough to provide a large nest egg for retirement, which would explain the high allocation to G. In fact, I don't know anyone who matches the L Fund allocations, based on her age, using the individual funds.
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Re: TSP bonds?

Post by rkhusky » Thu Mar 15, 2018 8:16 am

triceratop wrote:
Wed Mar 14, 2018 9:04 pm
The only point I have been making consistently in this thread is that the G fund is very clearly a free lunch in exposure to the TERM premium over owning treasury bonds (and therefore that component of the F fund which is treasury bonds, about 70% iirc?).
This seems like the only apples to apples comparison - the G Fund is better than the Treasuries held in the F Fund. A separate comparison would be whether the G Fund is better than the Corporate bonds held in the F Fund, which to my mind is personal preference on the risk/reward spectrum. In the comparison between G and F then, one has to combine the clear advantage of G over the F Treasuries with the perceived advantage or disadvantage between G and the F Corporates. Given the 70/30 allocation in the F Fund, it seems that, in order to choose F over G in isolation, one would need to believe that the F Corporates provide an advantage over G that is more than 2x the advantage that G has over the F Treasuries.

On the other hand, if one wanted the extra potential return of F, one could hold just G in the TSP and buy an appropriate amount of corporates outside of the TSP.

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Re: TSP bonds?

Post by azanon » Thu Mar 15, 2018 8:39 am

neiderer wrote:
Sun Mar 11, 2018 10:24 am
I am a retired federal employee who has contributed to Thrift Savings Plan over the past 33 years:mostly C and S funds (stocks). I now should become less risky and move
to bonds; in my case the G-fund. But G returns seem minimal. It seems like it does not even keep-up with inflation (?).

So I am learning about the different bonds. Maybe I should roll my money to a different place for more oppurtunity? Not sure.

Any thoughts are appreciated.

Thank you.
If you saved enough, L Income fund is the fund designed for retirement income, and will more than keep pace with inflation which, ideally, is all of the "growth" that you need in retirement. What I will likely do is use L income fund with Boglehead VPW, and use that to withdrawal until age 100. L income fund should be a low enough volatility, that I wouldn't have to move one year's worth to cash like VPW calls for.

If you actually need more growth than L income fund can produce, I hope you retired under duress. I've started to move into the camp that says if you actually need something like a 60/40 to subsist in retirement, you really didn't, or weren't able to save enough to retire. I'm in the camp that says the time horizon of a retiree is 0 because their human capital is exhausted. Retirement, ideally, should be worry-free, at least as far as finances are concerned.

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Re: TSP bonds?

Post by triceratop » Thu Mar 15, 2018 10:29 am

rkhusky wrote:
Thu Mar 15, 2018 8:16 am
triceratop wrote:
Wed Mar 14, 2018 9:04 pm
The only point I have been making consistently in this thread is that the G fund is very clearly a free lunch in exposure to the TERM premium over owning treasury bonds (and therefore that component of the F fund which is treasury bonds, about 70% iirc?).
This seems like the only apples to apples comparison - the G Fund is better than the Treasuries held in the F Fund. A separate comparison would be whether the G Fund is better than the Corporate bonds held in the F Fund, which to my mind is personal preference on the risk/reward spectrum. In the comparison between G and F then, one has to combine the clear advantage of G over the F Treasuries with the perceived advantage or disadvantage between G and the F Corporates. Given the 70/30 allocation in the F Fund, it seems that, in order to choose F over G in isolation, one would need to believe that the F Corporates provide an advantage over G that is more than 2x the advantage that G has over the F Treasuries.

On the other hand, if one wanted the extra potential return of F, one could hold just G in the TSP and buy an appropriate amount of corporates outside of the TSP.
Yes, with two exceptions. There is some sense in the idea of preferring treasury bonds (but not the F hand) to G fund because of the role it plays in the portfolio — possibly as negatively correlated with stocks during an equity crisis. The second are the people who want to make an interest rate bet (that they’ll decrease) but want some cover of investing for the yield as well; I have less sympathy for this perspective.
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Re: TSP bonds?

Post by fortyofforty » Thu Mar 15, 2018 7:08 pm

Whatever the reason, there has been a real and consistent performance edge to the F Fund over the G Fund. Again, I don't own any F because it's not my choice for what role I want bonds to play in my TSP portfolio. But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F. That appears to be the consensus for what the future holds.

F Fund returns:
Image

G Fund returns:
Image

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Re: TSP bonds?

Post by MnD » Fri Mar 16, 2018 6:30 pm

fortyofforty wrote:
Thu Mar 15, 2018 7:08 pm
Whatever the reason, there has been a real and consistent performance edge to the F Fund over the G Fund. Again, I don't own any F because it's not my choice for what role I want bonds to play in my TSP portfolio. But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F. That appears to be the consensus for what the future holds.

F Fund returns:
Image

G Fund returns:
Image
The past performance difference reason is not a mystery to wonder about. It is because interest rates have been on a declining trend line since the F and G fund were initiated in 1987 through mid-late 2016. The G fund pays the current weighted treasury bond rate for securities with maturities 4 years and longer. That includes things like 10-year and 30-year treasuries. And it pays that interest rate without any credit or duration risk because the security that pays that rate is a 1-day duration special issue treasury security.

A better "consensus" is that the F fund will likely outperform the G fund during periods of declining interest rates, absent some sort of credit downgrade or default disaster in corporate investment grade portion. In a trendless market the returns will likely be very similiar, but the F fund will experience more volatility due to duration risk. The G fund will outperform during periods of increasing interest rates, and again with less volatility than the F fund. Avoiding the F fund seems obvious unless you just want to make bets on declining interest rates. There are much better vehicles to do that with versus the F fund. I'd suggest an extended duration Treasury STRIPS fund like Vanguard Extended Duration Treasury ETF (EDV) which is down more than 7% YTD versus the F fund which is down "only" 2% year-to-date in an increasing interest rate environment.

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Re: TSP bonds?

Post by triceratop » Fri Mar 16, 2018 7:42 pm

But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F.
This is false; the G fund invests in longer term treasury products, obtaining the commensurate yield. Where the fund differs is in the fact it has a zero duration. It is also no great mystery why it underperformed the F fund historically.

My comments above go over this at some length.
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Re: TSP bonds?

Post by triceratop » Fri Mar 16, 2018 7:48 pm

Here is another recent post which may clear up any confusion for you, fortyofforty: viewtopic.php?f=1&t=244444&p=3832985#p3832922
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: TSP bonds?

Post by bayview » Sat Mar 17, 2018 11:08 am

I apologize if I missed this above.

Here is how you determine the current G fund rate:

https://www.tsp.gov/PlanningTools/Calcu ... ments.html

(or if you are logged in to your account, select TSP Loans under Online Transactions on the left.)

The loan rate is the current G fund rate.

Per today's site:
Interest Rate: The current rate for new loans is 2.875%, which is the current G Fund interest rate.
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Re: TSP bonds?

Post by welderwannabe » Sat Mar 17, 2018 12:13 pm

triceratop wrote:
Fri Mar 16, 2018 7:42 pm
This is false; the G fund invests in longer term treasury products, obtaining the commensurate yield. Where the fund differs is in the fact it has a zero duration. It is also no great mystery why it underperformed the F fund historically.

My comments above go over this at some length.
Agreed. The G Fund is a great benefit to people who can use a TSP. I am not a govt employee, so I don't have access, but wish I did. If I did, I would treat it like my MegaCorp SV fund and put 50% of my bond allocation in the G and 50% in the F.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: TSP bonds?

Post by fortyofforty » Sat Mar 17, 2018 1:39 pm

triceratop wrote:
Fri Mar 16, 2018 7:42 pm
But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F.
This is false; the G fund invests in longer term treasury products, obtaining the commensurate yield. Where the fund differs is in the fact it has a zero duration. It is also no great mystery why it underperformed the F fund historically.

My comments above go over this at some length.
You're partially right, so I stand corrected. G invests in short term securities (as I wrote) but ones that pay at a rate commensurate with medium to long term treasuries (as you imply).

One point to bear in mind: the famous Three Fund Portfolio uses nothing else but an F Fund equivalent for the bond portion of the investment. I don't think it's awful, by any means. It does carry duration risk, with the higher yields generally provided by having over a third in corporate bonds, as I've explained many times above.
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Re: TSP bonds?

Post by fortyofforty » Sat Mar 17, 2018 1:43 pm

triceratop wrote:
Fri Mar 16, 2018 7:48 pm
Here is another recent post which may clear up any confusion for you, fortyofforty: viewtopic.php?f=1&t=244444&p=3832985#p3832922
One point consistently overlooked is that many investors have no other retirement investments outside the TSP. Suggestions keep being made to invest this in an IRA or that in an IRA, ignoring the reality.
analyticalron wrote:
Fri Mar 16, 2018 4:43 pm
I don't have an IRA currently, but this point is well taken. 50/50 split with G fund and VCSH ETF make sense?
I submit that this investor is not alone. Recommendations to invest in an IRA may or may not be followed, so let's deal with reality as it stands now rather than how we wish things would be.
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Re: TSP bonds?

Post by triceratop » Sat Mar 17, 2018 3:34 pm

It took me 5 minutes to open an IRA. Everyone in the country with earned income qualifies to contribute (possibly not deductibly but many employees are not over the limit and also, can make deductible spousal contributions). Older TSP investors can do an in-service rollover (or if separated from service can do a partial rollover regardless of age).

It seems fairly reality-based to me. And since this is the Theory board it is helpful to develop correct theory, not justify poor analysis by means of incorrect descriptions of ease of access to corporate bonds by federal employees.
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Re: TSP bonds?

Post by triceratop » Sat Mar 17, 2018 3:40 pm

fortyofforty wrote:
Sat Mar 17, 2018 1:39 pm
triceratop wrote:
Fri Mar 16, 2018 7:42 pm
But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F.
This is false; the G fund invests in longer term treasury products, obtaining the commensurate yield. Where the fund differs is in the fact it has a zero duration. It is also no great mystery why it underperformed the F fund historically.

My comments above go over this at some length.
You're partially right, so I stand corrected. G invests in short term securities (as I wrote) but ones that pay at a rate commensurate with medium to long term treasuries (as you imply).

One point to bear in mind: the famous Three Fund Portfolio uses nothing else but an F Fund equivalent for the bond portion of the investment. I don't think it's awful, by any means. It does carry duration risk, with the higher yields generally provided by having over a third in corporate bonds, as I've explained many times above.
I don’t think I’m “partially” right, I’m think I’m completely right. You used the fact that the G fund has 0-duration and is described as a short-term security as the basis for a comparison with the F fund, arguing it will only outperform in a rising rate environment. This is a completely false comparison and is also a false statement (e.g. what if corporate spreads widen — that means the corporate bond prices declined). It is true that the TSP describes the G fund as investing in a non-marketable short term security; but actually interpreting that statement as having anything to do with an interest rate is wildly misleading.

Your explanations of the F fund’s credit risk are confusing — they conflate the risk with the 0-duration G fund. There is nothing preventing a TSP employee from using a corporate bond fund as well (especially if one is over 59.5 and does an in-service rollover to IRA).

It’s confusing to mix up credit and duration risk like this: in analysis we should keep them separated and restrict our F fund and G fund comparisons to the component of the F fund which are treasuries (and agency bonds, which is about 65%), as rkhusky mentions above.
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Re: TSP bonds?

Post by fortyofforty » Sat Mar 17, 2018 5:19 pm

triceratop wrote:
Sat Mar 17, 2018 3:34 pm
It took me 5 minutes to open an IRA. Everyone in the country with earned income qualifies to contribute (possibly not deductibly but many employees are not over the limit and also, can make deductible spousal contributions). Older TSP investors can do an in-service rollover (or if separated from service can do a partial rollover regardless of age).

It seems fairly reality-based to me. And since this is the Theory board it is helpful to develop correct theory, not justify poor analysis by means of incorrect descriptions of ease of access to corporate bonds by federal employees.
Yet the reality is that many in the government have no other, outside investments. I know. I work with some of them. Even those who should know better do not have IRAs.

You don't need to explain to me how easy it is to open an IRA. I've had an Individual Retirement Arrangement for decades. It is foolish not to have one. Yet in the real world, many do not. Sorry if you either won't or can't accept that reality.
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Re: TSP bonds?

Post by fortyofforty » Sat Mar 17, 2018 5:30 pm

triceratop wrote:
Sat Mar 17, 2018 3:40 pm
fortyofforty wrote:
Sat Mar 17, 2018 1:39 pm
triceratop wrote:
Fri Mar 16, 2018 7:42 pm
But, since the G Fund only invests in short term treasury products, and F invests in short, medium, and long term treasury and corporate bonds, it is probable that only in a rising interest rate environment would G outperform F.
This is false; the G fund invests in longer term treasury products, obtaining the commensurate yield. Where the fund differs is in the fact it has a zero duration. It is also no great mystery why it underperformed the F fund historically.

My comments above go over this at some length.
You're partially right, so I stand corrected. G invests in short term securities (as I wrote) but ones that pay at a rate commensurate with medium to long term treasuries (as you imply).

One point to bear in mind: the famous Three Fund Portfolio uses nothing else but an F Fund equivalent for the bond portion of the investment. I don't think it's awful, by any means. It does carry duration risk, with the higher yields generally provided by having over a third in corporate bonds, as I've explained many times above.
I don’t think I’m “partially” right, I’m think I’m completely right. You used the fact that the G fund has 0-duration and is described as a short-term security as the basis for a comparison with the F fund, arguing it will only outperform in a rising rate environment. This is a completely false comparison and is also a false statement (e.g. what if corporate spreads widen — that means the corporate bond prices declined). It is true that the TSP describes the G fund as investing in a non-marketable short term security; but actually interpreting that statement as having anything to do with an interest rate is wildly misleading.

Your explanations of the F fund’s credit risk are confusing — they conflate the risk with the 0-duration G fund. There is nothing preventing a TSP employee from using a corporate bond fund as well (especially if one is over 59.5 and does an in-service rollover to IRA).

It’s confusing to mix up credit and duration risk like this: in analysis we should keep them separated and restrict our F fund and G fund comparisons to the component of the F fund which are treasuries (and agency bonds, which is about 65%), as rkhusky mentions above.
That's wrong. You wrote:
the G fund invests in longer term treasury products, obtaining the commensurate yield.
So, you are wrong in the details, although for some reason you won't even admit that.

From the Thrift Savings Plan's own website:
The G Fund invests exclusively in a nonmarketable short-term [my bold] U.S. Treasury security that is specially issued to the TSP.
As I explained above, although G invests in short term securities, it receives a higher yield than market rate for that short term. So, whether you like it or not, I was correct in my statement, although the implication was incorrect, since G receives a much higher than market yield. As I explained in great detail. Can you at least admit that G invests in "short term securities" as I wrote, or do you claim something else?

As for your demand that we:
restrict our F fund and G fund comparisons to the component of the F fund which are treasuries...
I can't help but wonder why. Fully over a third of F invests in corporate debt, which, generally, pays higher dividends than government debt, due to the higher risk. Why would we have to ignore one of the chief differences, and one possible contributor to the outperformance of F compared with G over the years? Strange demand.
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Re: TSP bonds?

Post by triceratop » Sat Mar 17, 2018 11:05 pm

I don’t see why I should accept the reality of people making poor choices when I am formulating advice for helping them make better decisions. It just seems strange.
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Re: TSP bonds?

Post by triceratop » Sat Mar 17, 2018 11:08 pm

I won’t admit I am wrong because the “short-term” (not a technical term) character of the G fund is not appropriate for purposes of comparison, certainly not as you did to say that longer-term treasuries return more. The proper comparison is as a 0-duration investment earning intermediate-term yields.

This is my last post on the topic.
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Re: TSP bonds?

Post by fortyofforty » Sun Mar 18, 2018 10:48 am

triceratop wrote:
Sat Mar 17, 2018 11:05 pm
I don’t see why I should accept the reality of people making poor choices when I am formulating advice for helping them make better decisions. It just seems strange.
Because what you declare to be a "poor choice" might not be so for everyone in every situation. That's why.
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Re: TSP bonds?

Post by fortyofforty » Sun Mar 18, 2018 10:52 am

triceratop wrote:
Sat Mar 17, 2018 11:08 pm
I won’t admit I am wrong because the “short-term” (not a technical term) character of the G fund is not appropriate for purposes of comparison, certainly not as you did to say that longer-term treasuries return more. The proper comparison is as a 0-duration investment earning intermediate-term yields.

This is my last post on the topic.
What you wrote was incorrect verbiage, as I stated clearly, while true in result. I'll let those who can read make up their own minds, as I've explained it ad nauseam. Once again, from the TSP website:
The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP.
Since you're a moderator, this discussion can never end well for me, so I'm out if you want to get in the last word.
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Re: TSP bonds?

Post by MnD » Sun Mar 18, 2018 2:16 pm

The current yield advantage of the F fund over the G fund is less than 10 basis points, 2.97% versus 2.875%. For that <10 basis point premium, one has to take on credit risk in 35% of your portfolio (GE and Toys R Us bonds anyone?), and 6+ years duration risk on the entire portfolio for F versus 0 G.

In the real world, one would pick up 147 basis points of yield for assuming the F fund risk over a risk-free near zero duration treasury.
2.97% F versus 1.50% for T-bills.

So given access to the G fund, substituting the F fund is clearly a poor choice and you are wrong to suggest doing that.
Given access to the G fund and its special risk-reduced characteristics over a nominal intermediate-term bond, one might consider increasing their equity allocation somewhat if they desire the opportunity for higher overall portfolio returns.

This will be my last post as I can continue to keep explaining something, but I can't make any given individual understand it.

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Re: TSP bonds?

Post by fortyofforty » Sun Mar 18, 2018 2:31 pm

Boy, since investing even a dime in the F Fund is almost criminal, makes you wonder how the managers of the Lifestyle Funds get away with putting over 6% in there. :shock: Perhaps this is a clear violation of fiduciary responsibility.
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Re: TSP bonds?

Post by triceratop » Sun Mar 18, 2018 7:29 pm

fortyofforty wrote:
Sun Mar 18, 2018 2:31 pm
Boy, since investing even a dime in the F Fund is almost criminal, makes you wonder how the managers of the Lifestyle Funds get away with putting over 6% in there. :shock: Perhaps this is a clear violation of fiduciary responsibility.
No one is saying investing in the F fund is criminal nor a violation of fiduciary responsibility.

What people have repeatedly proved, including MnD just before your post, is that the F fund is a fund which takes on quite a bit of duration and credit risk for a 10bp yield spread to the G fund. if you're okay with that, Good luck. It amounts to a directional bet on duraton or taking on substantial credit risk for limited reward.
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Re: TSP bonds?

Post by Nestegg_User » Sun Mar 18, 2018 9:13 pm

I’ll bite....

a premise that “forty” has wrong is that feds don’t also have IRA’s .... well, virtually everyone in a few agencies that I was in (above a certain pay grade) had ... either by themselves or with a working spouse.

when I got closer to retirement and then in retirement, I moved away from the C fund to the G fund ...and added VCIT to the IRA and then kept my equities totally in taxable account for tax harvesting


as has been explained, the G is unique in structure as it never loses money despite the vagaries of the market . The F fund, because it doesn’t have this structural aspect, CAN loose money on BOTH the Federal component as well as on the corporate component due to duration risk. As noted upthread, by combining the best of both- G in TSP and VCIT in IRA one does get the maximum “risk-adjusted yield” for intermediate term - I do it myself. I didn’t see advantage in going beyond intermediate term, based on expected raises in rates, as the QE reduced rates so low that the likelihood of increases when it stopped was very high, and hence would reduce bond funds value in the short term.

I take my risk on the equity side, but gain as much low risk yield as possible on my bond side.

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Re: TSP bonds?

Post by Dominic » Sun Mar 18, 2018 9:25 pm

These funds are fundamentally different. The F Fund, as a total bond market fund, has considerable exposure to term and credit risk. The only real risk of the G Fund is reinvestment risk; if rates fall, so does your yield on the G Fund. The G Fund is, in essence, a cash fund that pays interest at the same rate as the market rate for intermediate- to long-term Treasuries. The G Fund is not a fund that returns the same as those Treasuries.

Let's say you buy $1,000 of a fund of Treasuries that yields 2.875% at a duration of 10 years. You also invest $1,000 in the G Fund. Tomorrow, the average Treasury yield collapses to 2%. Your hypothetical Treasury fund is yielding 1%, but is now worth 8.75% more, or $1,087.50. The G Fund is worth barely more than $1,000, but yields the same 1%. Obviously, the marketable Treasury fund is better in this case. This sounds extreme, but it's basically what happens in a bad bear market. Stocks fall, and money floods into Treasuries and depresses yields. Long-term bond owners profit off of capital gains, and short-term bond owners are stuck investing at lower rates.

I'd make the argument that something similar to the F Fund has a place in a portfolio, even with G Fund access. In times of crisis, intermediate- and long-term Treasury funds can balance out drawdowns from your equities. The G Fund won't lose money in that scenario, but it won't rescue you either.

All that being said, I'd probably make the G Fund the majority of my bond portfolio. It's essentially guaranteed to generate positive real returns every single day, no matter what happens.

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Re: TSP bonds?

Post by fortyofforty » Mon Mar 19, 2018 6:15 am

triceratop wrote:
Sun Mar 18, 2018 7:29 pm
fortyofforty wrote:
Sun Mar 18, 2018 2:31 pm
Boy, since investing even a dime in the F Fund is almost criminal, makes you wonder how the managers of the Lifestyle Funds get away with putting over 6% in there. :shock: Perhaps this is a clear violation of fiduciary responsibility.
No one is saying investing in the F fund is criminal nor a violation of fiduciary responsibility.

What people have repeatedly proved, including MnD just before your post, is that the F fund is a fund which takes on quite a bit of duration and credit risk for a 10bp yield spread to the G fund. if you're okay with that, Good luck. It amounts to a directional bet on duraton or taking on substantial credit risk for limited reward.
As I've repeatedly argued. Thank you for agreeing with me, and backing away from the "all or nothing" extremist position that is espoused by some here. There is NOTHING fundamentally wrong with investing part of your fixed income assets in F. Appreciate the agreement.
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Re: TSP bonds?

Post by fortyofforty » Mon Mar 19, 2018 6:18 am

Nestegg_User wrote:
Sun Mar 18, 2018 9:13 pm
I’ll bite....

a premise that “forty” has wrong is that feds don’t also have IRA’s .... well, virtually everyone in a few agencies that I was in (above a certain pay grade) had ... either by themselves or with a working spouse.

when I got closer to retirement and then in retirement, I moved away from the C fund to the G fund ...and added VCIT to the IRA and then kept my equities totally in taxable account for tax harvesting


as has been explained, the G is unique in structure as it never loses money despite the vagaries of the market . The F fund, because it doesn’t have this structural aspect, CAN loose money on BOTH the Federal component as well as on the corporate component due to duration risk. As noted upthread, by combining the best of both- G in TSP and VCIT in IRA one does get the maximum “risk-adjusted yield” for intermediate term - I do it myself. I didn’t see advantage in going beyond intermediate term, based on expected raises in rates, as the QE reduced rates so low that the likelihood of increases when it stopped was very high, and hence would reduce bond funds value in the short term.

I take my risk on the equity side, but gain as much low risk yield as possible on my bond side.
A premise that you have wrong is that ALL Feds have IRAs. I know this is not the case because I know personally some who do not. What does that simple fact prove? That not all Feds have IRAs. I don't know what is so complicated about that. They should, but they don't. Some don't even contribute anything beyond what is put in the TSP on their behalf by the agency, although that is far more rare these days than it used to be. :shock:
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Re: TSP bonds?

Post by fortyofforty » Mon Mar 19, 2018 6:20 am

Dominic wrote:
Sun Mar 18, 2018 9:25 pm
I'd make the argument that something similar to the F Fund has a place in a portfolio, even with G Fund access. In times of crisis, intermediate- and long-term Treasury funds can balance out drawdowns from your equities. The G Fund won't lose money in that scenario, but it won't rescue you either.

All that being said, I'd probably make the G Fund the majority of my bond portfolio. It's essentially guaranteed to generate positive real returns every single day, no matter what happens.
Apparently the good folks who manage the Lifestyle funds agree with you. I prefer to be in G and don't have a dime in F, but I wouldn't condemn someone for doing so.
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Re: TSP bonds?

Post by triceratop » Mon Mar 19, 2018 7:30 am

fortyofforty wrote:
Mon Mar 19, 2018 6:18 am
Nestegg_User wrote:
Sun Mar 18, 2018 9:13 pm
I’ll bite....

a premise that “forty” has wrong is that feds don’t also have IRA’s .... well, virtually everyone in a few agencies that I was in (above a certain pay grade) had ... either by themselves or with a working spouse.

when I got closer to retirement and then in retirement, I moved away from the C fund to the G fund ...and added VCIT to the IRA and then kept my equities totally in taxable account for tax harvesting


as has been explained, the G is unique in structure as it never loses money despite the vagaries of the market . The F fund, because it doesn’t have this structural aspect, CAN loose money on BOTH the Federal component as well as on the corporate component due to duration risk. As noted upthread, by combining the best of both- G in TSP and VCIT in IRA one does get the maximum “risk-adjusted yield” for intermediate term - I do it myself. I didn’t see advantage in going beyond intermediate term, based on expected raises in rates, as the QE reduced rates so low that the likelihood of increases when it stopped was very high, and hence would reduce bond funds value in the short term.

I take my risk on the equity side, but gain as much low risk yield as possible on my bond side.
A premise that you have wrong is that ALL Feds have IRAs. I know this is not the case because I know personally some who do not. What does that simple fact prove? That not all Feds have IRAs. I don't know what is so complicated about that. They should, but they don't. Some don't even contribute anything beyond what is put in the TSP on their behalf by the agency, although that is far more rare these days than it used to be. :shock:
I don’t think any of the rest of us in this thread are saying ALL feds currently have IRAs. But, you have successfully demolished that man made of straw.

What we have all stated is that all feds are eligible for IRAs.

We probably also agree not everyone makes ideal financial decisions, including possibly opening an IRA to structure one’s fixed income portfolio more advantageously.
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Re: TSP bonds?

Post by tadamsmar » Mon Mar 19, 2018 7:49 am

I think F looks worse in isolation. The analysts who create the L Fund don't do that, so they have a relatively small allocation to F.

One interesting idea that has been discussed here is to pair G with something other that F, like a corporate bond fund. Buying treasuries in both F and G looks less favorable perhaps.

On problem is that there is not much info on asset allocations that include G. financialengines.com is one tool that analyzes such portfolios. Otherwise, you have find a tool to calculate efficient frontiers that include G. But the L Fund creators don't just use historical data, I think they include some analysis of current conditions.

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Re: TSP bonds?

Post by fortyofforty » Mon Mar 19, 2018 8:25 am

:sharebeer
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Re: TSP bonds?

Post by fortyofforty » Mon Mar 19, 2018 8:46 am

triceratop wrote:
Mon Mar 19, 2018 7:30 am
I don’t think any of the rest of us in this thread are saying ALL feds currently have IRAs. But, you have successfully demolished that man made of straw.
Nestegg_User wrote:
Sun Mar 18, 2018 9:13 pm
a premise that “forty” has wrong is that feds don’t also have IRA’s .... well, virtually everyone in a few agencies that I was in (above a certain pay grade) had ... either by themselves or with a working spouse.
fortyofforty wrote:
Mon Mar 19, 2018 6:18 am
A premise that you have wrong is that ALL Feds have IRAs. I know this is not the case because I know personally some who do not. What does that simple fact prove? That not all Feds have IRAs. I don't know what is so complicated about that. They should, but they don't. Some don't even contribute anything beyond what is put in the TSP on their behalf by the agency, although that is far more rare these days than it used to be. :shock:
:beer
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Re: TSP bonds?

Post by MnD » Mon Mar 19, 2018 12:06 pm

Pairing the G fund with Vanguard Intermediate Term Corporate (investment grade) gives us a "fund" with the same split between US government and corporate debt as the F fund or total bond market (64/36) but with markedly better metrics for both blended duration and yield.

100% F Fund or Total Bond Market
Yield 2.97%
Duration 6.1 years

64% G fund 36% VCIT
Blended yield 3.20%
Blended duration 2.34 years

Pairing the G fund with Long-term corporate bonds still keeps the blended duration well under that of the F fund, and with a 47 bp yield .
64% G Fund, 36% VCLT
Blended yield 3.43%
Blended duration 5.0 years

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Re: TSP bonds?

Post by triceratop » Mon Mar 19, 2018 12:27 pm

MnD wrote:
Mon Mar 19, 2018 12:06 pm
Pairing the G fund with Vanguard Intermediate Term Corporate (investment grade) gives us a "fund" with the same split between US government and corporate debt as the F fund or total bond market (64/36) but with markedly better metrics for both blended duration and yield.

100% F Fund or Total Bond Market
Yield 2.97%
Duration 6.1 years

64% G fund 36% VCIT
Blended yield 3.20%
Blended duration 2.34 years

Pairing the G fund with Long-term corporate bonds still keeps the blended duration well under that of the F fund, and with a 47 bp yield .
64% G Fund, 36% VCLT
Blended yield 3.43%
Blended duration 5.0 years
Vanguard lists the SEC yield of the Total Bond Market fund as 2.87% (typo?), which is also close to the current G fund interest rate (2.875%). I wonder if the SEC yield is lagging; your number may be more accurate.

This is an excellent post. I'd add:

64% G fund, 36% VCSH
Blended yield 2.92%
Blended duration 1.00 years

The yield for the blended fixed income portfolio is roughly the yield for the F fund, but with 5 years less duration risk.
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Re: TSP bonds?

Post by Nestegg_User » Mon Mar 19, 2018 12:41 pm

MnD

I use VCIT rather than the longer term VCLT because I don’t see the increase in yield is worth the increased term risk (especially in the current bond environment)

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Re: TSP bonds?

Post by MnD » Mon Mar 19, 2018 1:34 pm

triceratop wrote:
Mon Mar 19, 2018 12:27 pm
MnD wrote:
Mon Mar 19, 2018 12:06 pm
Pairing the G fund with Vanguard Intermediate Term Corporate (investment grade) gives us a "fund" with the same split between US government and corporate debt as the F fund or total bond market (64/36) but with markedly better metrics for both blended duration and yield.

100% F Fund or Total Bond Market
Yield 2.97%
Duration 6.1 years

64% G fund 36% VCIT
Blended yield 3.20%
Blended duration 2.34 years

Pairing the G fund with Long-term corporate bonds still keeps the blended duration well under that of the F fund, and with a 47 bp yield .
64% G Fund, 36% VCLT
Blended yield 3.43%
Blended duration 5.0 years
Vanguard lists the SEC yield of the Total Bond Market fund as 2.87% (typo?), which is also close to the current G fund interest rate (2.875%). I wonder if the SEC yield is lagging; your number may be more accurate.

This is an excellent post. I'd add:

64% G fund, 36% VCSH
Blended yield 2.92%
Blended duration 1.00 years

The yield for the blended fixed income portfolio is roughly the yield for the F fund, but with 5 years less duration risk.
I used the Admiral/ETF class SEC yield of 2.97% for TBM which have ER's of .05% - closer to that of the F fund .033%.

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Re: TSP bonds?

Post by triceratop » Mon Mar 19, 2018 2:17 pm

That's correct of course. How silly of me! :oops:
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Re: TSP bonds?

Post by Watty » Mon Mar 19, 2018 2:35 pm

neiderer wrote:
Sun Mar 11, 2018 10:24 am
Maybe I should roll my money to a different place for more oppurtunity? Not sure.

Any thoughts are appreciated.
Just FYI,

Just in case you didn't know the TSP has different, and worse, inheritance rules than an IRA so you might want to consider if it would make sense to role the money out to an IRA.

There is a wiki on this;
https://www.bogleheads.org/wiki/TSP_estate_planning

There may be other permutations but there was a post a while back by someone that had run into this situation.

1) Husband has large TSP
2) He dies and leave it to his wife as a beneficiary participant. She OK
3) She dies a few years later and leaves it to their kid.

The problem is that there is no way for the kid to keep the money in the TSP or roll it out to an inherited IRA so the kids has to withdraw a six figure amount all in one year and pay taxes on it in a very high tax bracket.

If either the father or mother had rolled the money out to an IRA then the kid could have had an inherited IRA and spread the withdrawals out over several decades.

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Re: TSP bonds?

Post by MnD » Mon Mar 19, 2018 2:54 pm

Watty wrote:
Mon Mar 19, 2018 2:35 pm
neiderer wrote:
Sun Mar 11, 2018 10:24 am
Maybe I should roll my money to a different place for more oppurtunity? Not sure.

Any thoughts are appreciated.
Just FYI,

Just in case you didn't know the TSP has different, and worse, inheritance rules than an IRA so you might want to consider if it would make sense to role the money out to an IRA.

There is a wiki on this;
https://www.bogleheads.org/wiki/TSP_estate_planning

There may be other permutations but there was a post a while back by someone that had run into this situation.

1) Husband has large TSP
2) He dies and leave it to his wife as a beneficiary participant. She OK
3) She dies a few years later and leaves it to their kid.

The problem is that there is no way for the kid to keep the money in the TSP or roll it out to an inherited IRA so the kids has to withdraw a six figure amount all in one year and pay taxes on it in a very high tax bracket.

If either the father or mother had rolled the money out to an IRA then the kid could have had an inherited IRA and spread the withdrawals out over several decades.
Is this a TSP rule that's worse, or a rule that applies to most or all workplace plans like some 401-K's that also allow spouses to retain beneficiary accounts?

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Re: TSP bonds?

Post by Watty » Mon Mar 19, 2018 5:45 pm

MnD wrote:
Mon Mar 19, 2018 2:54 pm
Is this a TSP rule that's worse, or a rule that applies to most or all workplace plans like some 401-K's that also allow spouses to retain beneficiary accounts?
I am not a tax guru but I am pretty sure that it is just the TSP. I found this link about it.

https://www.fidelity.com/viewpoints/per ... tance-tips

With a 401k though you also would need to be careful since your employer could have more restrictive rules and few do limit your inheritance options.

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Re: TSP bonds?

Post by hoppy08520 » Tue Mar 20, 2018 5:24 pm

Watty wrote:
Mon Mar 19, 2018 5:45 pm
MnD wrote:
Mon Mar 19, 2018 2:54 pm
Is this a TSP rule that's worse, or a rule that applies to most or all workplace plans like some 401-K's that also allow spouses to retain beneficiary accounts?
I am not a tax guru but I am pretty sure that it is just the TSP. I found this link about it.

https://www.fidelity.com/viewpoints/per ... tance-tips

With a 401k though you also would need to be careful since your employer could have more restrictive rules and few do limit your inheritance options.
Based on what I've read, these rules are a blend of employer plan requirements and the TSP.

The fidelity link is only talking about inheriting a 401(k) directly from a 401(k) participant. The TSP quirk that people are talking about in this thread is when someone inherits an inherited spousal TSP from a "beneficiary participant" (i.e. surviving spouse), which means you are a "successor beneficiary" of the "beneficiary participant" who inherited the TSP from the original Federal employee TSP participant. This "successor beneficiary" may not stay in the TSP and must take a taxable distribution.

A eligible employer plan may allow a "successor beneficiary" to stay in the same plan, but it's not required that a plan allow this; it's up to the plan. The TSP does not allow this; therefore, per IRS rules the "successor beneficiary" must take a taxable distribution.

Source:
401(k) - Bogleheads Wiki wrote:Successor beneficiaries

If the designated beneficiary stays in the plan, successor beneficiaries of the designated beneficiary may not rollover an inherited balance to an IRA, per Sec 402(c)(11). A 401(k) plan may, however, choose to allow successor beneficiaries to stay in the plan, and take required minimum distribution requirements using the same schedule that the original designated beneficiary was using.
So, what this means for TSP participants and "beneficiary participant" (surviving spouses):
TSP estate planning - Bogleheads Wiki wrote:The inability of a successor beneficiary of a TSP to create an inherited IRA with his or her death benefit portion of a TSP is a significant consideration with estate planning, as it could leave the successor beneficiary with a large taxable distribution. Therefore, spousal survivors who inherit their deceased spouse's TSP may wish to consider rolling the TSP into an IRA if they wish to preserve the tax-advantaged status of these assets for their own beneficiaries; see Figure 2 on this page illustrating this scenario.

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Re: TSP bonds?

Post by LadyGeek » Tue Mar 20, 2018 10:32 pm

fortyofforty wrote:
Sun Mar 18, 2018 10:52 am
triceratop wrote:
Sat Mar 17, 2018 11:08 pm
I won’t admit I am wrong because the “short-term” (not a technical term) character of the G fund is not appropriate for purposes of comparison, certainly not as you did to say that longer-term treasuries return more. The proper comparison is as a 0-duration investment earning intermediate-term yields.

This is my last post on the topic.
What you wrote was incorrect verbiage, as I stated clearly, while true in result. I'll let those who can read make up their own minds, as I've explained it ad nauseam. Once again, from the TSP website:
The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP.
Since you're a moderator, this discussion can never end well for me, so I'm out if you want to get in the last word.
Opposing points of view are welcome, including disagreements with a moderator. See: Moderator responsibilities in disputes
Moderators should not moderate a thread in which s/he has been a participant. Whenever s/he is involved, moderation of the thread will be passed to another moderator.
I'll refrain from participating in the discussion.
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Re: TSP bonds?

Post by Watty » Wed Mar 21, 2018 5:52 am

hoppy08520 wrote:
Tue Mar 20, 2018 5:24 pm
A eligible employer plan may allow a "successor beneficiary" to stay in the same plan, but it's not required that a plan allow this; it's up to the plan. The TSP does not allow this; therefore, per IRS rules the "successor beneficiary" must take a taxable distribution.
That is interesting, I never realized that a 401k could have the same problem. Even if a plan does allow this there would also be a chance that a 401k plan could be discontinued if a company went out of business which might also be a problem.

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