If you have access to TIAA-Traditional, should you own *any* bonds right now?

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lawnboss
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If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by lawnboss » Tue May 19, 2020 5:03 pm

Hi All,

Presently, our ORP gives us access to the Vanguard TRFs, which represent a user-selected (by year/horizon) proportion of stocks to bonds. But, as all of our funds are offered through TIAA, we also have access to the guaranteed 3% return of TIAA Traditional. In contemplating a rebalance toward my planned AA, my initial instinct was to do so by shifting my choice of TRF date (and generally letting the TRF hold the AA fixed from there). But, it occurs to me... in a crummy climate for bonds, is there a point in having any "bond fund" holdings at all? Would it be better to simply use TIAA Traditional for my "low risk/low reward" asset (presumably combined with another fund that is mostly/purely stocks)? Or, do folks still see a benefit to holding bonds that cannot be accomplished via TIAA Traditional? If so, what is that benefit? If not, then would there be *any* scenario where you see bonds as preferable to TIAA Traditional? Right now, a guaranteed 3% return seems almost too good to be true.

Many thanks in advance!
-LB

student
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by student » Tue May 19, 2020 5:11 pm

I cannot say whether you should own any bonds. However, I will mention my own situation. I do not like the fluctuation of a bond fund, so my fixed income portion comes almost exclusively from TIAA Traditional.

livesoft
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by livesoft » Tue May 19, 2020 5:16 pm

I could have more in TIAA Traditional, but chose to put my money into Bonds instead. People have been so wrong about bond funds for so many years now that I just have to go against the flow which has actually been a pretty darn good strategy.

Furthermore with bond funds up nearly 6% so far in 2020, that's like 2 years of TIAA Traditional, but in only 5 months, so I can afford to give bond funds some slack.
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columbia
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by columbia » Tue May 19, 2020 5:20 pm

You’d have to pry Traditional out of my cold, dead hands: I’m 100% in that account.

(Since I’m going to annuituze, the above will sort of actually happen. :) )
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by stlrick » Tue May 19, 2020 5:23 pm

There are two things you should check carefully before using TIAA Traditional (also known as TRAD). First, TIAA offers several different kinds of contractual arrangements with employers. They go by designations such as RA, GRA, SRA, RC, RCP. They may all offer TIAA Traditional, but they do not all guarantee 3%. Make sure you are looking at the TRAD arrangement that refers to your plan designation. Second, if you want to move your money out of TRAD, most of the contracts have withdrawal restrictions requiring you take your money out in 10 equal annual payments (over 9 years and 1 day) once you put it in. There are a couple of the contracts that offer the 3% guarantee with no restrictions on withdrawals, but they are the minority. I have had a considerable portion of my 403(b) in TRAD for 40 years and have been very happy with it.

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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by oldzey » Tue May 19, 2020 5:29 pm

columbia wrote:
Tue May 19, 2020 5:20 pm
You’d have to pry Traditional out of my cold, dead hands: I’m 100% in that account.

(Since I’m going to annuituze, the above will sort of actually happen. :) )
If I live long enough, I'll annuitize my Traditional.

If not, my beneficiaries will be blessed with having to learn TIAA-speak to figure out what to do with it.
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by nisiprius » Tue May 19, 2020 5:32 pm

Since I long since converted my TIAA Traditional to a lifetime payout contract, I'm out of touch. I would say find out whether this is the kind of TIAA Traditional that can only be liquidated via a series of ten annual "transfer payment annuities"--as mine was; or whether it is the kind that can be liquidated in a single lump sum. If the former, then you might take that into account in making your decision.

I set up my spreadsheet so that I could categorize my assets in more than one way and see totals. For some purposes, such as judging the riskiness of my whole portfolio, I consider TIAA Traditional as "bonds." For others, since TIAA Traditional wasn't truly liquid, like thinking about my "emergency fund," I didn't.
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by aristotelian » Tue May 19, 2020 5:35 pm

I have about half my bond allocation in TIAA Traditional. Some reasons I have other bonds is for rebalancing, interest rate risk, and just an uneasy feeling that I don't want that much of my portfolio entrusted to any single entity regardless of their history and reputation.

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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by willthrill81 » Tue May 19, 2020 9:06 pm

livesoft wrote:
Tue May 19, 2020 5:16 pm
I could have more in TIAA Traditional, but chose to put my money into Bonds instead. People have been so wrong about bond funds for so many years now that I just have to go against the flow which has actually been a pretty darn good strategy.
Maybe you're right and that it is a good strategy, but it seems that you've actually just had good results. A strategy is not the same as results.
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by tibbitts » Tue May 19, 2020 9:12 pm

lawnboss wrote:
Tue May 19, 2020 5:03 pm
Hi All,

Presently, our ORP gives us access to the Vanguard TRFs, which represent a user-selected (by year/horizon) proportion of stocks to bonds. But, as all of our funds are offered through TIAA, we also have access to the guaranteed 3% return of TIAA Traditional. In contemplating a rebalance toward my planned AA, my initial instinct was to do so by shifting my choice of TRF date (and generally letting the TRF hold the AA fixed from there). But, it occurs to me... in a crummy climate for bonds, is there a point in having any "bond fund" holdings at all? Would it be better to simply use TIAA Traditional for my "low risk/low reward" asset (presumably combined with another fund that is mostly/purely stocks)? Or, do folks still see a benefit to holding bonds that cannot be accomplished via TIAA Traditional? If so, what is that benefit? If not, then would there be *any* scenario where you see bonds as preferable to TIAA Traditional? Right now, a guaranteed 3% return seems almost too good to be true.

Many thanks in advance!
-LB
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.

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Spinola
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by Spinola » Wed May 20, 2020 12:19 am

Even TIAA Retirement Advisor Plan (Morningstar) Tool advises holding BOTH. Ranging from 35% Traditional and 23% bonds for their conservative allocations, to 29% Traditional and 18% bonds in moderate allocations and 7% Traditional and 4 % bonds for their more aggressive allocations. A moderate aggressive allocation recommends 14% Traditional and 10% bonds. Diversification and re-balancing are the reason for me.

I am currently 36% Traditional and 5 % bonds.. most of my traditional is 20 years + vintages earning me 4%, and bonds are mostly intermediate and long term US treasuries. I sold off all my corporate and high yield bonds. Enron is long gone, but the US Treasury is still kicking around and printing the green stuff.. :mrgreen:

Greg in Idaho
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by Greg in Idaho » Wed May 20, 2020 7:45 am

All of my 401/403/457 funds are in TRAD (moved to a different job, so no longer contributing), and I couldn't be more pleased to have that chunk of ballast quietly increasing consistently as my largest portion of my fixed AA (I have averaged around 4%). That has been the case for some time, but now even more for the precise reasons you cite. We'll see if I'm so pleased if rates ever take off...

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lawnboss
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by lawnboss » Wed May 20, 2020 10:55 am

Thanks for all of the replies so far. They are quite helpful.
tibbitts wrote:
Tue May 19, 2020 9:12 pm
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.
Forgive me, but I'm not sure I understand this comment. Is there somewhere deep within the clockwork of TIAA where I would find that my ability to purchase TIAA-Trad is capped? Or did I totally miss your meaning?

I know I cannot arbitrarily take money out of TIAA-Trad, but I have never encountered any limitations to putting money into it. If I am reading the spirit of this comment correctly, indeed in my case (long period of employment with academic employers) all of my core retirement is (and will likely remain) with TIAA.

Many thanks!
-LB

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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by Hydromod » Wed May 20, 2020 12:42 pm

lawnboss wrote:
Wed May 20, 2020 10:55 am
Thanks for all of the replies so far. They are quite helpful.
tibbitts wrote:
Tue May 19, 2020 9:12 pm
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.
Forgive me, but I'm not sure I understand this comment. Is there somewhere deep within the clockwork of TIAA where I would find that my ability to purchase TIAA-Trad is capped? Or did I totally miss your meaning?

I know I cannot arbitrarily take money out of TIAA-Trad, but I have never encountered any limitations to putting money into it. If I am reading the spirit of this comment correctly, indeed in my case (long period of employment with academic employers) all of my core retirement is (and will likely remain) with TIAA.

Many thanks!
-LB
I think this means that the guaranteed TIAA interest rates for new investment money are dropping over time. The minimum rates are guaranteed at the time of investment, and some excess may occur at TIAA discretion.

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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by TropikThunder » Wed May 20, 2020 1:06 pm

lawnboss wrote:
Wed May 20, 2020 10:55 am
Thanks for all of the replies so far. They are quite helpful.
tibbitts wrote:
Tue May 19, 2020 9:12 pm
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.
Forgive me, but I'm not sure I understand this comment. Is there somewhere deep within the clockwork of TIAA where I would find that my ability to purchase TIAA-Trad is capped? Or did I totally miss your meaning?

I know I cannot arbitrarily take money out of TIAA-Trad, but I have never encountered any limitations to putting money into it. If I am reading the spirit of this comment correctly, indeed in my case (long period of employment with academic employers) all of my core retirement is (and will likely remain) with TIAA.

Many thanks!
-LB
I think they just mean that if your asset allocation is say 70/30 but only 20% of your funds are at TIAA (because of job change etc), then you can’t fit your whole “bond” allocation in Traditional. This could also happen if you had a non-TIAA 403b and rolled it into a TIAA IRA (because your TIAA 403b wouldn’t take incoming rollovers?). In that case you’d have access to Traditional but at the lower RC guarantee.

That said, that’s a non-issue for me and I have all my bond allocation in Traditional.

columbia
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by columbia » Mon Jul 06, 2020 8:19 am

The (and my) illiquid RC plan finally dropped below 3% for new contributions, but no hesitation on continuing to pile money into that every other week.
If you leave your head in the sand for too long, you might get run over by a Jeep.

stlrick
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by stlrick » Mon Jul 06, 2020 8:46 am

TIAA-Traditional is backed by the TIAA General Account. The general account investments are summarized here:

https://www.tiaa.org/public/pdf/perform ... rength.pdf

Since so much of the general account is in corporate bonds, owning a diversified bond fund would duplicate risk. The general account has a much smaller percentage of treasuries, and as best as I can tell, does not include TIPS, so my bond allocation is 80% TRAD, 20% TIPS funds.
Last edited by stlrick on Mon Jul 06, 2020 9:16 am, edited 1 time in total.

tibbitts
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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by tibbitts » Mon Jul 06, 2020 8:54 am

lawnboss wrote:
Wed May 20, 2020 10:55 am
Thanks for all of the replies so far. They are quite helpful.
tibbitts wrote:
Tue May 19, 2020 9:12 pm
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.
Forgive me, but I'm not sure I understand this comment. Is there somewhere deep within the clockwork of TIAA where I would find that my ability to purchase TIAA-Trad is capped? Or did I totally miss your meaning?

I know I cannot arbitrarily take money out of TIAA-Trad, but I have never encountered any limitations to putting money into it. If I am reading the spirit of this comment correctly, indeed in my case (long period of employment with academic employers) all of my core retirement is (and will likely remain) with TIAA.

Many thanks!
-LB
I was only saying that for many people, even 100% of their TIAA investments being in Traditional would not be sufficient for their fixed income allocation, in that while they could always transfer "outside" money (IRA, etc.) money into TIAA, that additional money would mostly likely be at only 1%. Indeed if you have only worked for a TIAA employer then you could well have enough in your employer accounts to cover all your fixed allocation at 3% minimum.

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Re: If you have access to TIAA-Traditional, should you own *any* bonds right now?

Post by Katietsu » Mon Jul 06, 2020 3:43 pm

tibbitts wrote:
Mon Jul 06, 2020 8:54 am
lawnboss wrote:
Wed May 20, 2020 10:55 am
Thanks for all of the replies so far. They are quite helpful.
tibbitts wrote:
Tue May 19, 2020 9:12 pm
This is not a practical question for most people because it implies you have enough balance in a TIAA employer contract to cover 100% of your bond requirements. If you don't and roll money in from IRAs, you are likely looking at a 1% rate.
Forgive me, but I'm not sure I understand this comment. Is there somewhere deep within the clockwork of TIAA where I would find that my ability to purchase TIAA-Trad is capped? Or did I totally miss your meaning?

I know I cannot arbitrarily take money out of TIAA-Trad, but I have never encountered any limitations to putting money into it. If I am reading the spirit of this comment correctly, indeed in my case (long period of employment with academic employers) all of my core retirement is (and will likely remain) with TIAA.

Many thanks!
-LB
I was only saying that for many people, even 100% of their TIAA investments being in Traditional would not be sufficient for their fixed income allocation, in that while they could always transfer "outside" money (IRA, etc.) money into TIAA, that additional money would mostly likely be at only 1%. Indeed if you have only worked for a TIAA employer then you could well have enough in your employer accounts to cover all your fixed allocation at 3% minimum.
The other issue is that even current employer’s with TIAA contracts are freezing their “old” plan and replacing it with contracts that have only a 1% guarantee.

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