BND vs TIAA Traditional for Fixed Income

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GatorFL
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BND vs TIAA Traditional for Fixed Income

Post by GatorFL »

I recently moved my portfolio into TIAA, which is my employer plan who I plan on retiring from in 2 years.

I did this to take advantage of the "Rule of 55", as well as to get access to the institutional class shares of Vanguard for VITSX (vs VTSAX).

I set up my 3 fund portfolio, but then started doing some research on the TIAA Traditional funds. There are a few flavors of it, one that is liquid. The liquid version of TIAA Traditional is paying 2.75% on new money.

My question is this. With interests rate so low, does it make sense to leverage the TIAA Traditional instead of VBTIX? I'm concerned that the bond funds are going to take a beating. Are there other TIAA bogleheads that use TIAA Traditional as a equivalent for Vanguard bond funds?

Thanks
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House Blend
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Re: BND vs TIAA Traditional for Fixed Income

Post by House Blend »

GatorFL wrote: Fri Oct 25, 2019 7:21 am My question is this. With interests rate so low, does it make sense to leverage the TIAA Traditional instead of VBTIX? I'm concerned that the bond funds are going to take a beating. Are there other TIAA bogleheads that use TIAA Traditional as a equivalent for Vanguard bond funds?
If you search this site, you will find dozens of threads where (usually the same) bogleheads feel the urgent need to tell everyone that they prefer Traditional to bond funds.

But keep in mind that many Bogleheads have been worried about "bond funds taking a beating" for at least 10 years. In those 10 years, VBTIX has returned 3.71%/yr.

Your use of the term "leverage" seems odd here, but if the 2.75% + guarantee helps you sleep at night, then I don't have any problem with that.

[Side comment: There is more than one flavor of liquid Traditional--looks like yours is an RC+ contract--Retirement Choice Plus.]
Topic Author
GatorFL
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Re: BND vs TIAA Traditional for Fixed Income

Post by GatorFL »

Thanks HouseBlend. You are correct, mine is an RC+ contract--Retirement Choice Plus.

I am comfortable with my AA and with the fixed income including some of the RC+ (2.75%) as a hedge, but will stick with VBTIX for most of my fixed income. The proverbial sky has been falling on bonds for many years, I get it. I was just curious to know if other TIAA customers use a blend.

I do find that TIAA Traditional is very confusing, it took me awhile and a few phone calls to really understand how it works.
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dknightd
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Re: BND vs TIAA Traditional for Fixed Income

Post by dknightd »

You might want to look at this recent thread if you have not already seen it.

viewtopic.php?f=10&t=280858&newpost=480 ... ead#unread


Edit: to answer your question: In the accounts that hold my non-flexible TIAA traditional holdings, I also hold both normal and inflation linked bonds. I plan to annuitize all my TIAA traditional in those accounts, so am not concerned about liquidity. In my account that holds flexible TIAA traditional I do not hold any other bond like things. But my SRA is still guaranteeing 3%. In your shoes, I'd probably hold some Traditional, and some other bond funds. Just to be diversified ;)

edit2: I wish one of my TIAA accounts would offer VITSX.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds. Retired 9/19. Still working on mortgage payoff.
aristotelian
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Re: BND vs TIAA Traditional for Fixed Income

Post by aristotelian »

I would not make a judgment on TIAA Traditional based on current interest rates. Your funds are going to be tied up for 10 years and you have no idea where interest rates will be in the future. TIAA can also adjust its interest rates at will. Personally, I have about half of my bond allocation in TIAA Traditional as 4% seems like historically a good deal and I do not have a cheap bond index in my employer plan. If you go with TIAA Traditional, you may also want to keep a portion in a bond index fund for ease of rebalancing as well.
columbia
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Re: BND vs TIAA Traditional for Fixed Income

Post by columbia »

aristotelian wrote: Fri Oct 25, 2019 8:46 am I would not make a judgment on TIAA Traditional based on current interest rates. Your funds are going to be tied up for 10 years and you have no idea where interest rates will be in the future. TIAA can also adjust its interest rates at will. Personally, I have about half of my bond allocation in TIAA Traditional as 4% seems like historically a good deal and I do not have a cheap bond index in my employer plan. If you go with TIAA Traditional, you may also want to keep a portion in a bond index fund for ease of rebalancing as well.
The RC Plus option allows withdrawals without penalty.

Now whether it makes sense to use it for just a few years? Who knows, given the unpredictability of bond rates.
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Spinola
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Re: BND vs TIAA Traditional for Fixed Income

Post by Spinola »

Some of my TIAA vintages are earning 4% to 4.4 % and a guaranteed rate of 3% on most of my vintages (1994-2001 and 2002 -2011), which are in the illiquid fund. Overall, given the current gloomy outlook, I am happy to have TIAA traditional option, about 37% of my AA, and another 2.5% is in VBTLX and LBNYX for rebalancing and diversification, which will increase over the next 10 years to about 20% of my AA.
I also like the TIAA Real Estate fund.

I am not sure that with a 2 year window it will be beneficial, but certainly worth looking into?

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leftcoaster
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Re: BND vs TIAA Traditional for Fixed Income

Post by leftcoaster »

My wife has a 403(b) from a former employer invested in Traditional. Question for the experts: is it possible to move money from the liquid contracts to the illiquid ones with higher rates?

I imagine that it wouldn't make sense now b/c the contract return on the illiquid ones is probably not more than the illiquid ones, but I ask....
aristotelian
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Re: BND vs TIAA Traditional for Fixed Income

Post by aristotelian »

leftcoaster wrote: Fri Oct 25, 2019 9:42 am My wife has a 403(b) from a former employer invested in Traditional. Question for the experts: is it possible to move money from the liquid contracts to the illiquid ones with higher rates?

I imagine that it wouldn't make sense now b/c the contract return on the illiquid ones is probably not more than the illiquid ones, but I ask....
Absolutely, assuming both options are available in her plan. Usually the return is higher for the illiquid class.
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