TSP bonds?

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neiderer
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TSP bonds?

Post by neiderer » 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.

Crushtheturtle
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Re: TSP bonds?

Post by Crushtheturtle » Sun Mar 11, 2018 10:52 am

Thank you for your service.

TSP G fund has definitely outpaced inflation in the past, but there is no guarantee that it will continue to do so. It is considered to be a very good fixed income product- the yield of an intermediate term bond fund, with no risk of loss to principal. TSP.gov has factsheets that describe each of their 5 core funds.

Please continue reading and learning. Don't just blindly accept the dogma that you need more fixed income as you progress into retirement, without at least making certain that the underlying assumptions apply.

:beer

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flamesabers
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Re: TSP bonds?

Post by flamesabers » Sun Mar 11, 2018 10:53 am

I don't think it's a good idea to interchange the role of bonds with the role of stocks. From what I've seen on this forum, the G-fund is commonly regarded as a top-tier bond fund:
The G Fund is a uniquely good deal for investors, as it has a risk/return profile unrivaled by any other fixed income instrument:

It is risk-free, like Treasury bonds;
The yield is equal to the average of intermediate-term Treasury bonds;
Like a money market, and unlike Treasuries, its price never goes down;
And, because it repurchases its bonds daily, it provides some of the inflation protection of TIPS.
https://www.bogleheads.org/wiki/Thrift_ ... lan#G_Fund

I think it really depends on what your overall portfolio looks like and how much/how soon you'll be withdrawing money from your TSP. If you have a pension/social security/other source of fixed income to pay the bills, perhaps you can hold-off on moving money into the G-Fund. If on the other hand you're likely to start withdrawing money from your TSP in the foreseeable future, you should probably start moving money into the G-Fund. Nobody likes to liquidate their equities during a downturn in the stock market.

stan1
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Re: TSP bonds?

Post by stan1 » Sun Mar 11, 2018 11:00 am

Does your pension plus social security cover all of your living expenses? If so then maybe you are already investing for your heirs. You can take more risk if you choose because you have a pension.

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grabiner
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Re: TSP bonds?

Post by grabiner » Sun Mar 11, 2018 11:05 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.
A general principle of investing is that there is no free lunch. There are bond investments with higher yields, but in return for those higher yields, you take more risks. Since the reason you hold bonds is to decrease the risk of your portfolio, this defeats the purpose.

However, there is only no free lunch in the market. The G fund bonds are not marketable; their yield is set by law, rather than by bond traders. The G fund has the yield of an intermediate-term bond fund, with no risk.

While the G fund is not guaranteed to keep up with inflation, it is likely to do so. Bond traders know about inflation as well, so they will not buy long-term bonds at yields less than expected inflation. The G fund yield is the average yield of Treasuries which are more than four years from maturity, and which should thus trade at yields that cover expected inflation.

Note the "expected" here, which turns out to be a major advantage of the G fund. If inflation expectations change, bond traders will demand higher yields on their bonds. Most bond prices will fall; a ten-year bond loses 10% of its value if its yield rises by 1%. But the G fund bonds mature daily; if yields rise by 1%, the G fund price does not change but it starts earning the higher yield.
Wiki David Grabiner

chevca
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Re: TSP bonds?

Post by chevca » Sun Mar 11, 2018 11:15 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.
You seem to be contradicting yourself here. You want to become less risky, but you are worried about low returns. Lees risky tends to equal lower returns or lower expected returns. You can't really have both. If you still want the return or higher returns, may as well stick with stocks.

How did you stay comfortable with all stocks right up to retirement? As someone else asked, does you pension and maybe SS meet all your expenses? You may not need to switch to bonds.

The G fund is probably one of the best out there though, if you decide to switch.

Don't go chasing yield on the bond side if you decide to take less risk. That's not the side to do that on. There's a saying about, ... more money lost chasing yield than at the end of a gun... :happy

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fortyofforty
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Re: TSP bonds?

Post by fortyofforty » Sun Mar 11, 2018 12:39 pm

Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F. I personally use a bit of G for stability and ballast (and will periodically rebalance as things move out of proportion or on a set time schedule, e.g. quarterly or annually).

I am not looking for G to provide any real growth in the sense of increasing the overall value of my TSP investment. I don't think that's what it was designed to do. It just chugs along slowly. When you have "enough" you could be 100% G and never lose a dime. When you are still hoping or needing to grow your balance, you've got the other four choices to play with.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

InvisibleAerobar
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Re: TSP bonds?

Post by InvisibleAerobar » Mon Mar 12, 2018 2:11 pm

be cognizant of the fact that the "free lunch" may not last.

cutting the yield on the G-Fund is a favorite bromide of certain "think tanks" for shrinking the deficit. There are proposals to have its yield lowered to be comparable to that of short term treasury bonds (right now that would be ~1.5% v ~2.5%). If this were to happen, the G-Fund would likely not keep pace with inflation. All the caveat about predicting the future applies here, but the writing has also been on the wall.

Realize also that the Treasury loves to use the G-Fund as its own piggy bank, dipping into the fund to finance operations of the government whenever we get too close to the debt ceiling. The good news is that it's mostly an academic point up to now, as what was taken was always returned (though without any interest payment), but this may change in the future as well.

Personally, I like it a lot. In terms of my portfolio, the G-Fund is effectively cash with a guaranteed positive yield. It makes buying on the dip so much easier as the G-Fund by definition goes in the opposite direction of any stock market declines (cf. F-Fund, which may lose value when the C-Fund lose value). Whether I would hold the same view should they cut the yield, I don't know.

MnD
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Re: TSP bonds?

Post by MnD » Mon Mar 12, 2018 3:00 pm

fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.

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hoppy08520
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Re: TSP bonds?

Post by hoppy08520 » Mon Mar 12, 2018 3:06 pm

InvisibleAerobar wrote:
Mon Mar 12, 2018 2:11 pm
be cognizant of the fact that the "free lunch" may not last.

cutting the yield on the G-Fund is a favorite bromide of certain "think tanks" for shrinking the deficit. There are proposals to have its yield lowered to be comparable to that of short term treasury bonds (right now that would be ~1.5% v ~2.5%). If this were to happen, the G-Fund would likely not keep pace with inflation. All the caveat about predicting the future applies here, but the writing has also been on the wall.
I hear what you're saying here, and as a G Fund investor this worries me too, but if that should happen at some point, then we will have a chance to respond to it.

I believe these sorts of proposals have circulated around for many years. I don't know how imminent the latest threat is. I hope it succeeds as well as the earlier attempts.

The fact that there are proposals to cut the G Fund rate proves just how good the G Fund actually is. It's so good that budget cutters want to take away the free lunch that G Fund investors enjoy.

MnD
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Re: TSP bonds?

Post by MnD » Mon Mar 12, 2018 3:16 pm

InvisibleAerobar wrote:
Mon Mar 12, 2018 2:11 pm
There are proposals to have its yield lowered to be comparable to that of short term treasury bonds (right now that would be ~1.5% v ~2.5%). If this were to happen, the G-Fund would likely not keep pace with inflation. All the caveat about predicting the future applies here, but the writing has also been on the wall.

Realize also that the Treasury loves to use the G-Fund as its own piggy bank, dipping into the fund to finance operations of the government whenever we get too close to the debt ceiling. The good news is that it's mostly an academic point up to now, as what was taken was always returned (though without any interest payment), but this may change in the future as well.
1) The noise regarding a change to the TSP G fund index has been around for decades. Keep in mind TSP account holders include a certain group of folks that would have to take coordinated action to enact such a adverse change, that would impact their own accounts. The current G-Fund index is not unlike stable value fund yields at megacorp versus some unique gravy train.

2) When TSP G fund investments are suspended, by law the contributions, including all foregone interest is fully replaced when the suspension is over.

Federal law requires the Secretary to reinvest these funds in interest-bearing Treasury
securities when the debt-issuance suspension period has ended, and to credit both the CSRDF
and the “G” fund with the interest that was foregone when the funds were invested in noninterest-bearing
accounts. Consequently, neither the Civil Service Retirement and Disability
Fund nor the “G” fund of the TSP can suffer any reduction in assets or loss of interest
income as a result of the actions taken by the Secretary of the Treasury under the authority
of sections 8348 and 8438 of title 5, United States Code.

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Jerry55
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Re: TSP bonds?

Post by Jerry55 » Mon Mar 12, 2018 7:12 pm

I'm retired CSRS, so you may be that, or FERS or even FERS Offset. Special category or not.

Like those above, think about your pension, social security or the like, if you're under 62. Figure out your income and your expenses.
You can diddle with the funds, or even do an L Income fund, which keeps things modestly higher than the G Fund would provide, hopefully.
There's no magic pill or formula for your point in life, if you have a spouse, or are single. Lots of factors to consider.

I'm still 50/25/25 in C/S/I fund, and will consider those options in about 5-7 years. Good Luck, I'm certain you'll make the right choice.
Retired CSRS on 12/19/2012 @ age 57 w/39 years | Good Bye Tension, Hello Pension !!!

trueblueky
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Re: TSP bonds?

Post by trueblueky » Mon Mar 12, 2018 8:10 pm

I have owned G Fund since it started 1 April 1987.
If G Fund changes for the worse, then I may move those funds.
Meanwhile, I will be content knowing G Fund has never had a bad day.

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fortyofforty
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Re: TSP bonds?

Post by fortyofforty » Mon Mar 12, 2018 9:17 pm

MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
The long term historical returns of the F Fund have indeed outperformed that of the G Fund. You can explain it and discount it, and claim it won't be repeated. Perhaps you are right. I don't know the future. I do know the past.

Year G Fund F Fund
2008 3.75% 5.45%
2009 2.97% 5.99%
2010 2.81% 6.71%
2011 2.45% 7.89%
2012 1.47% 4.29%
2013 1.89% (1.68%)
2014 2.31% 6.73%
2015 2.04% 0.91%
2016 1.82% 2.91%
2017 2.33% 3.82%
10 Yr Compound:
2.38% 4.27%
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

MnD
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Re: TSP bonds?

Post by MnD » Mon Mar 12, 2018 9:47 pm

fortyofforty wrote:
Mon Mar 12, 2018 9:17 pm
MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
The long term historical returns of the F Fund have indeed outperformed that of the G Fund. You can explain it and discount it, and claim it won't be repeated. Perhaps you are right. I don't know the future. I do know the past.

Year G Fund F Fund
2008 3.75% 5.45%
2009 2.97% 5.99%
2010 2.81% 6.71%
2011 2.45% 7.89%
2012 1.47% 4.29%
2013 1.89% (1.68%)
2014 2.31% 6.73%
2015 2.04% 0.91%
2016 1.82% 2.91%
2017 2.33% 3.82%
10 Yr Compound:
2.38% 4.27%
I am pioneer TSP investor (May 1987), a period when intermediate bond yields declined 1987-2017 from around 9% to around 2%. "Knowing the past" also entails gaining a bit of understanding why in a 30-year window like that, an intermediate bond fund that has interest rate risk and reward like F fund or Total Bond Market (TBM) would outperform a stable value fund with yield payout indexed to intermediate term bond yields. I'm fine with people not understanding the "why" in the past performance difference between the stable value funds and things like the F fund or TBM.

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blaugranamd
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Re: TSP bonds?

Post by blaugranamd » Tue Mar 13, 2018 5:25 am

As others have said, G fund offers security that no other fund can. If the lower returns bug you adjust your AA rather than what fund you use. In my very simple opinion, bonds are there to provide stability and security and the G fund does that well.
-- Don't mistake more funds for more diversity: Total Int'l + Total Market = 7k to 10k stocks -- | -- Market return does NOT = average nor 50th percentile, rather 80-90th percentile long term ---

rkhusky
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Re: TSP bonds?

Post by rkhusky » Tue Mar 13, 2018 7:27 am

MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
I'm wondering if the 30% corporate bonds in the F fund also plays a role in out-performance over G, with its associated higher risk? If so, a 70/30 split between G Fund and an Int. Corp. Bond fund should be strictly better than the F Fund.

Also, note this post from 2011, where people were worried about interest rates going up and bond fund NAV going down: viewtopic.php?t=68376

Yooper16
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Re: TSP bonds?

Post by Yooper16 » Tue Mar 13, 2018 8:55 am

We have our TSP in 100% G fund, which is about 60% of our bond/cash allocation for our retirement monies. The remaining 40% is at Vanguard in the Intermediate Bond Fund, which slightly gooses the return over Total Bond Fund. Figured that the G fund provided a very good solid base to build the fixed side upon. Gives me a sense of security, and a willingness to let stock portion of our retirement money be around 60%

Maybe if you have bonds elsewhere, besides TSP, you might consider the same approach.

MnD
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Re: TSP bonds?

Post by MnD » Tue Mar 13, 2018 9:59 am

rkhusky wrote:
Tue Mar 13, 2018 7:27 am
MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
I'm wondering if the 30% corporate bonds in the F fund also plays a role in out-performance over G, with its associated higher risk? If so, a 70/30 split between G Fund and an Int. Corp. Bond fund should be strictly better than the F Fund.
Absolutely. Pair the G fund (2.875% yield zero duration) with Vanguard intermediate term corporate at SEC yield 3.76% and 6.4 years duration.
Or stick with 100% G fund and increase your equity exposure a bit.

But it makes no sense to pair the G fund at 2.875% with a F-fund TBM type product that's 64% government with an SEC yield of only 2.98% and 6.1 year duration. The 64% of the F fund that's government represents buying uncompensated risk if you have access to the G fund.
People look at the F fund past total return which has bracketed a bull market for bonds for 30 years and assume the additional risk equates to an inherent significant return advantage. That is simply not the case. Less than an 1/8th increase in yield does not compensate for adding 6+ years of duration risk.

InvisibleAerobar
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Re: TSP bonds?

Post by InvisibleAerobar » Tue Mar 13, 2018 10:38 am

MnD wrote:
Tue Mar 13, 2018 9:59 am
rkhusky wrote:
Tue Mar 13, 2018 7:27 am
MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
I'm wondering if the 30% corporate bonds in the F fund also plays a role in out-performance over G, with its associated higher risk? If so, a 70/30 split between G Fund and an Int. Corp. Bond fund should be strictly better than the F Fund.
Absolutely. Pair the G fund (2.875% yield zero duration) with Vanguard intermediate term corporate at SEC yield 3.76% and 6.4 years duration.
Or stick with 100% G fund and increase your equity exposure a bit.

But it makes no sense to pair the G fund at 2.875% with a F-fund TBM type product that's 64% government with an SEC yield of only 2.98% and 6.1 year duration. The 64% of the F fund that's government represents buying uncompensated risk if you have access to the G fund.
People look at the F fund past total return which has bracketed a bull market for bonds for 30 years and assume the additional risk equates to an inherent significant return advantage. That is simply not the case. Less than an 1/8th increase in yield does not compensate for adding 6+ years of duration risk.
This is probably a bit OT, how would you recommend bond asset allocation for a Fed? Right now, all I have is TSP and Roth, so the different tax issues don't come into play. I'm at ~70% equity and 30% bonds/CD, and both my TSP and Roth are roughly allocated as such.

TSP is nearing 100k, and is 30% G-Fund with the remainder in C-Fund. Roth value is an order of magnitude smaller, and I have some in 16% in CD, 12% in Barclay AGG (essentially F-fund), and the rest in S&P 500 and large cap Int'l. In an ideal world, all my bonds are in G-Fund, and I'd sell that to buy the dips in the equity funds in my Roth, but this is so purely academic that it's moot. In the real world, I have only the AGG to use, which is rather horrible for rebalancing purposes, as sometimes i'd have to sell bond that's losing value in order to buy equity that lost more value...

rkhusky
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Re: TSP bonds?

Post by rkhusky » Tue Mar 13, 2018 12:54 pm

InvisibleAerobar wrote:
Tue Mar 13, 2018 10:38 am
TSP is nearing 100k, and is 30% G-Fund with the remainder in C-Fund. Roth value is an order of magnitude smaller, and I have some in 16% in CD, 12% in Barclay AGG (essentially F-fund), and the rest in S&P 500 and large cap Int'l. In an ideal world, all my bonds are in G-Fund, and I'd sell that to buy the dips in the equity funds in my Roth, but this is so purely academic that it's moot. In the real world, I have only the AGG to use, which is rather horrible for rebalancing purposes, as sometimes i'd have to sell bond that's losing value in order to buy equity that lost more value...
Why not just have stocks and bonds in TSP and US and Int'l in Roth? Rebalance between stocks and bonds in TSP and between US and Int'l in Roth.

And, there isn't really anything wrong with AGG or rebalancing out of something that dropped a little.
InvisibleAerobar wrote:
Tue Mar 13, 2018 10:38 am
In the real world, I have only the AGG to use, which is rather horrible for rebalancing purposes, as sometimes i'd have to sell bond that's losing value in order to buy equity that lost more value...

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fortyofforty
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Re: TSP bonds?

Post by fortyofforty » Tue Mar 13, 2018 1:34 pm

MnD wrote:
Mon Mar 12, 2018 9:47 pm
fortyofforty wrote:
Mon Mar 12, 2018 9:17 pm
MnD wrote:
Mon Mar 12, 2018 3:00 pm
fortyofforty wrote:
Sun Mar 11, 2018 12:39 pm
Keep in mind that, if you are not comfortable with the "low" returns of the G-Fund, you could use the F-Fund or a blend of G and F.
The F fund has very little "return" edge over the G fund. 2.875% is the current yield for the G fund versus 2.98% for the F fund (estimated from TBM admiral class). The historical edge for the F fund performance mostly reflects the long-term decline in interest rates which have been a feature of the bond market for almost the entire time the F fund has existed 1987 to date.
The long term historical returns of the F Fund have indeed outperformed that of the G Fund. You can explain it and discount it, and claim it won't be repeated. Perhaps you are right. I don't know the future. I do know the past.

Year G Fund F Fund
2008 3.75% 5.45%
2009 2.97% 5.99%
2010 2.81% 6.71%
2011 2.45% 7.89%
2012 1.47% 4.29%
2013 1.89% (1.68%)
2014 2.31% 6.73%
2015 2.04% 0.91%
2016 1.82% 2.91%
2017 2.33% 3.82%
10 Yr Compound:
2.38% 4.27%
I am pioneer TSP investor (May 1987), a period when intermediate bond yields declined 1987-2017 from around 9% to around 2%. "Knowing the past" also entails gaining a bit of understanding why in a 30-year window like that, an intermediate bond fund that has interest rate risk and reward like F fund or Total Bond Market (TBM) would outperform a stable value fund with yield payout indexed to intermediate term bond yields. I'm fine with people not understanding the "why" in the past performance difference between the stable value funds and things like the F fund or TBM.
Generally, in the world of finance, greater risk is rewarded with higher returns. That is why a money market fund generally returns less than a long term bond fund, except in periods of severe interest rate increases. I have no issues with people supposing that they "know" what will happen in the future based on what they've seen in the past, but I remain skeptical that anyone truly has a crystal ball.
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

NoVaBlue
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Re: TSP bonds?

Post by NoVaBlue » Tue Mar 13, 2018 1:54 pm

Congrats to the OP on retirement. :beer

On whether TSP participants should use the G or F fund (or both) for their bond allocation, it's worth taking a look at the TSP's Lifecycle Funds -- which let you see what the program's own money managers think is the ideal mix of the two funds at any given point in an investor's journey.

https://www.tsp.gov/InvestmentFunds/Fun ... index.html

Here's the mix for each fund:

L Income (for those in the withdrawal phase -- the OP's situation):
G fund = 74%
F fund = 6%
C,S,I funds (equities) = 20%

L2020 (those near retirement):
G fund = 58.5%
F fund = 6.5%
C,S,I funds (equities) = 35%

L2030
G fund = 32.16%
F fund = 6.59%
C,S,I funds (equities) = 61.25%

And so on. It's telling that even in the longer-term 2040/2050 funds, the percentage of F fund always stays around 6-6.5%, while the G fund starts around 12% and keeps increasing. So what purpose does the F fund really serve -- especially as you get closer to retirement and the ratio of G to F becomes, in the case of the L Income fund, more than 12 to 1?

I don't use the Lifecycle funds because I prefer a different mix of C,S,I in my TSP -- so I don't even bother with the F fund and keep my entire fixed-income allocation in the G fund. It's not a huge return, but that's not what it's for. As someone else noted above, the G fund "never has a bad day." I prefer taking my risk on the equity side, so I use only G for bonds and have bumped up my allocation to equities higher than I would if I was only using F or another total bond market equivalent, which would carry more risk. MnD also makes a good point above:
MnD wrote:
Tue Mar 13, 2018 9:59 am
But it makes no sense to pair the G fund at 2.875% with a F-fund TBM type product that's 64% government with an SEC yield of only 2.98% and 6.1 year duration. The 64% of the F fund that's government represents buying uncompensated risk if you have access to the G fund.
To get back to the OP's question -- as others have noted, many factors come into play here, such as how far your pension/SS go toward covering your living expenses, how soon you need to withdraw the money, how much you want to leave to heirs/beneficiaries, etc. But for someone in retirement, I really don't think you can go wrong with some combo of the L Income and/or L 2020 fund. They have enough G fund (60-75%) to protect what you've accumulated from a severe downturn, while still holding enough in equities (20-35%) to stay ahead of the inflation bogeyman.

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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 6:25 am

I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
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Re: TSP bonds?

Post by ji.isaacs » Wed Mar 14, 2018 8:53 am

Why would someone use the TSP's F fund?

The G fund is unique to the TSP and cannot be purchased anywhere else. The F fund is nothing special and it's equivalent be purchased anywhere, fund or etf, for a very reasonable ER. Even if one doesn't have an IRA or Roth outside of the TSP, the F fund equivalent can be purchased in a taxable account. Assuming no changes are made to the G fund, it's perhaps one of the best fixed income opportunities available anywhere.

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Re: TSP bonds?

Post by rkhusky » Wed Mar 14, 2018 1:45 pm

ji.isaacs wrote:
Wed Mar 14, 2018 8:53 am
Why would someone use the TSP's F fund?
Because F has outperformed G by about 1% annually.
ji.isaacs wrote: The G fund is unique to the TSP and cannot be purchased anywhere else. The F fund is nothing special and it's equivalent be purchased anywhere, fund or etf, for a very reasonable ER. Even if one doesn't have an IRA or Roth outside of the TSP, the F fund equivalent can be purchased in a taxable account. Assuming no changes are made to the G fund, it's perhaps one of the best fixed income opportunities available anywhere.
Others argue that their Stable Value fund is just as good as the G Fund.

If one pairs the G Fund in the TSP with a Int. Corp Bond fund in an IRA, in a 70/30 ratio, that should provide the returns of the F Fund with much lower risk.

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Re: TSP bonds?

Post by InvisibleAerobar » Wed Mar 14, 2018 1:47 pm

rkhusky wrote:
Tue Mar 13, 2018 12:54 pm
InvisibleAerobar wrote:
Tue Mar 13, 2018 10:38 am
TSP is nearing 100k, and is 30% G-Fund with the remainder in C-Fund. Roth value is an order of magnitude smaller, and I have some in 16% in CD, 12% in Barclay AGG (essentially F-fund), and the rest in S&P 500 and large cap Int'l. In an ideal world, all my bonds are in G-Fund, and I'd sell that to buy the dips in the equity funds in my Roth, but this is so purely academic that it's moot. In the real world, I have only the AGG to use, which is rather horrible for rebalancing purposes, as sometimes i'd have to sell bond that's losing value in order to buy equity that lost more value...
Why not just have stocks and bonds in TSP and US and Int'l in Roth? Rebalance between stocks and bonds in TSP and between US and Int'l in Roth.

And, there isn't really anything wrong with AGG or rebalancing out of something that dropped a little.
InvisibleAerobar wrote:
Tue Mar 13, 2018 10:38 am
In the real world, I have only the AGG to use, which is rather horrible for rebalancing purposes, as sometimes i'd have to sell bond that's losing value in order to buy equity that lost more value...
Thanks for the suggestion. Certainly seems a more sane way of doing things

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Re: TSP bonds?

Post by MnD » Wed Mar 14, 2018 4:21 pm

fortyofforty wrote:
Wed Mar 14, 2018 6:25 am
I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
It doesn't take a "crystal ball" to know that a 2.875% treasury bond fund that pays interest pegged right around the 10-year but has a duration of 1 day is a better deal than a 2.9x% mostly government bond fund with a 6-year duration interest risk and some credit risk. The "return advantage" you keep wrongly attributing to increased risk is almost all due to a secular decline in interest rates for nearly the entire period the G fund and F fund have existed. There is no inherent risk premium in returns for the F fund because of the unique characteristics of the G fund yield index and duration.

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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 5:48 pm

MnD wrote:
Wed Mar 14, 2018 4:21 pm
fortyofforty wrote:
Wed Mar 14, 2018 6:25 am
I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
It doesn't take a "crystal ball" to know that a 2.875% treasury bond fund that pays interest pegged right around the 10-year but has a duration of 1 day is a better deal than a 2.9x% mostly government bond fund with a 6-year duration interest risk and some credit risk. The "return advantage" you keep wrongly attributing to increased risk is almost all due to a secular decline in interest rates for nearly the entire period the G fund and F fund have existed. There is no inherent risk premium in returns for the F fund because of the unique characteristics of the G fund yield index and duration.
So are you arguing that there is a free lunch? Are you arguing that the G Fund, with NO RISK to principal, would have provided a higher return than the Total Bond Market Index equivalent F Fund, were it not for [INSERT FAVORITE EXCUSE FOR UNDERPERFORMANCE HERE]? And are you arguing that G will outperform F over the next 3, 5, or 10 years? Sounds like a crystal ball to me.
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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 6:00 pm

fortyofforty wrote:
Wed Mar 14, 2018 5:48 pm
MnD wrote:
Wed Mar 14, 2018 4:21 pm
fortyofforty wrote:
Wed Mar 14, 2018 6:25 am
I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
It doesn't take a "crystal ball" to know that a 2.875% treasury bond fund that pays interest pegged right around the 10-year but has a duration of 1 day is a better deal than a 2.9x% mostly government bond fund with a 6-year duration interest risk and some credit risk. The "return advantage" you keep wrongly attributing to increased risk is almost all due to a secular decline in interest rates for nearly the entire period the G fund and F fund have existed. There is no inherent risk premium in returns for the F fund because of the unique characteristics of the G fund yield index and duration.
So are you arguing that there is a free lunch? Are you arguing that the G Fund, with NO RISK to principal, would have provided a higher return than the Total Bond Market Index equivalent F Fund, were it not for [INSERT FAVORITE EXCUSE FOR UNDERPERFORMANCE HERE]? And are you arguing that G will outperform F over the next 3, 5, or 10 years? Sounds like a crystal ball to me.
There very clearly is a free lunch. Whether that lunch turns out to be nutritious over any given time period is questionable.

But it helps to actually understand what the free lunch is. The free lunch is not that the G fund is expected to outperform the F fund over any given time period. The free lunch is instead the fact that the G fund gets you yield spreads over the risk-free rate (30 day T-bill) comparable to the F fund's but without taking on 6 years of duration risk. That is risk. Ask bond owners how they did in the rising interest rates leading into 1980.

Gaining that yield for 0-duration is plainly a free lunch -- where else can you get that on the financial markets? I'll wait.

The fact it wasn't rewarded 1987-2017 is irrelevant and has nothing to do with a crystal ball: the free lunch can be easily laid out in plain English as I did in the preceding paragraph.
"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 fortyofforty » Wed Mar 14, 2018 7:02 pm

triceratop wrote:
Wed Mar 14, 2018 6:00 pm
fortyofforty wrote:
Wed Mar 14, 2018 5:48 pm
MnD wrote:
Wed Mar 14, 2018 4:21 pm
fortyofforty wrote:
Wed Mar 14, 2018 6:25 am
I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
It doesn't take a "crystal ball" to know that a 2.875% treasury bond fund that pays interest pegged right around the 10-year but has a duration of 1 day is a better deal than a 2.9x% mostly government bond fund with a 6-year duration interest risk and some credit risk. The "return advantage" you keep wrongly attributing to increased risk is almost all due to a secular decline in interest rates for nearly the entire period the G fund and F fund have existed. There is no inherent risk premium in returns for the F fund because of the unique characteristics of the G fund yield index and duration.
So are you arguing that there is a free lunch? Are you arguing that the G Fund, with NO RISK to principal, would have provided a higher return than the Total Bond Market Index equivalent F Fund, were it not for [INSERT FAVORITE EXCUSE FOR UNDERPERFORMANCE HERE]? And are you arguing that G will outperform F over the next 3, 5, or 10 years? Sounds like a crystal ball to me.
There very clearly is a free lunch. Whether that lunch turns out to be nutritious over any given time period is questionable.

But it helps to actually understand what the free lunch is. The free lunch is not that the G fund is expected to outperform the F fund over any given time period. The free lunch is instead the fact that the G fund gets you yield spreads over the risk-free rate (30 day T-bill) comparable to the F fund's but without taking on 6 years of duration risk. That is risk. Ask bond owners how they did in the rising interest rates leading into 1980.

Gaining that yield for 0-duration is plainly a free lunch -- where else can you get that on the financial markets? I'll wait.

The fact it wasn't rewarded 1987-2017 is irrelevant and has nothing to do with a crystal ball: the free lunch can be easily laid out in plain English as I did in the preceding paragraph.
We all know that there is no risk to principal in the G Fund. That is why it is the only fund in the entire TSP system that the government automatically enrolls workers in. Every other move is voluntary on the part of enrollees.

The issue is the argument that, because the yields of bonds are expected to keep rising, the return of the F Fund will necessarily be lower than that of the G Fund. If you are certain it will be, then you indeed do have a crystal ball. If you are not sure, like me, then you admit you don't know. We can cite yields and durations all day long, but the facts don't change.

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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 7:20 pm

fortyofforty wrote:
Wed Mar 14, 2018 7:02 pm
triceratop wrote:
Wed Mar 14, 2018 6:00 pm
fortyofforty wrote:
Wed Mar 14, 2018 5:48 pm
MnD wrote:
Wed Mar 14, 2018 4:21 pm
fortyofforty wrote:
Wed Mar 14, 2018 6:25 am
I am always amused by experts who are able to predict with absolute certainty how a broad market index reflecting an entire asset class will perform in the next 3, 5, 10 or more years. Personally, I have zero money in F. None. Yet, if someone chose to put some of her money there, I wouldn't start disparaging that move or claiming I know what the future holds. Most of the financial world thought rates would start rising many years ago. It was wrong. Again. Diversification almost never hurts, which is why a mixture of G and F might be of some benefit.
It doesn't take a "crystal ball" to know that a 2.875% treasury bond fund that pays interest pegged right around the 10-year but has a duration of 1 day is a better deal than a 2.9x% mostly government bond fund with a 6-year duration interest risk and some credit risk. The "return advantage" you keep wrongly attributing to increased risk is almost all due to a secular decline in interest rates for nearly the entire period the G fund and F fund have existed. There is no inherent risk premium in returns for the F fund because of the unique characteristics of the G fund yield index and duration.
So are you arguing that there is a free lunch? Are you arguing that the G Fund, with NO RISK to principal, would have provided a higher return than the Total Bond Market Index equivalent F Fund, were it not for [INSERT FAVORITE EXCUSE FOR UNDERPERFORMANCE HERE]? And are you arguing that G will outperform F over the next 3, 5, or 10 years? Sounds like a crystal ball to me.
There very clearly is a free lunch. Whether that lunch turns out to be nutritious over any given time period is questionable.

But it helps to actually understand what the free lunch is. The free lunch is not that the G fund is expected to outperform the F fund over any given time period. The free lunch is instead the fact that the G fund gets you yield spreads over the risk-free rate (30 day T-bill) comparable to the F fund's but without taking on 6 years of duration risk. That is risk. Ask bond owners how they did in the rising interest rates leading into 1980.

Gaining that yield for 0-duration is plainly a free lunch -- where else can you get that on the financial markets? I'll wait.

The fact it wasn't rewarded 1987-2017 is irrelevant and has nothing to do with a crystal ball: the free lunch can be easily laid out in plain English as I did in the preceding paragraph.
We all know that there is no risk to principal in the G Fund. That is why it is the only fund in the entire TSP system that the government automatically enrolls workers in. Every other move is voluntary on the part of enrollees.

The issue is the argument that, because the yields of bonds are expected to keep rising, the return of the F Fund will necessarily be lower than that of the G Fund. If you are certain it will be, then you indeed do have a crystal ball. If you are not sure, like me, then you admit you don't know. We can cite yields and durations all day long, but the facts don't change.

Det er vanskeligt at spaa, især naar det gælder Fremtiden.
You say:

"The issue is the argument that, because the yields of bonds are expected to keep rising, the return of the F Fund will necessarily be lower than that of the G Fund"

That is emphatically not my argument. I did not make that claim, though I do see why it is convenient for you if I had. The argument is that there is a risk that that will occur (yields also could decrease, a boon for the F fund). The fact we do not know which will occur is duration risk. The fact is, the G fund gets you a yield quite comparable to the F fund without taking on this duration risk. That is the free lunch.

Crystal balls have nothing to do with it.

I cannot believe we are discussing whether a fund with no default risk and 0-duration risk to a fixed income product with a 6-year duration is not in fact less risky. Remember that the goal of fixed income is to pick up the income. It's unfortunate that you have to take duration risk (or credit risk) to pick up a higher yield. Unless, you don't.

I notice you did not answer my question about obtaining that rate without taking on duration risk on the open financial markets.
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 7:56 pm

This discussion has devolved into the realm of nonsensical discourse.

Either you "know" that the F Fund will underperform the G Fund going forward, or you do not. Simple choice. I do not know. It would be convenient for you if I argued that the G Fund was not a good choice, or that investing in the G Fund would necessarily provide lower returns than the F Fund. I never did. I do not personally invest in F, and do invest in G, as I've never been a fan of the Total Bond Market, despite its place of honor in the oft-cited "Three Fund Portfolio".

I don't know whether G or F will outperform in the future, or which will provide a lower (or inverse) correlation to the movement of stocks. It is, therefore, not irrational for someone to use a combination of G and F to capture potentially higher returns provided by a Total Bond Market Index vehicle instead of purely utilizing G. Not optimal. Not better. Just not irrational. Why? Because nobody knows what the future holds.

Arguing against greater diversification seems anti-Boglehead, in a way, but it happens often.
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 8:01 pm

As for your question, I thought it was rhetorical. You cannot get that deal on the open market. It is reserved for government employees. You get a low yield with no risk of principal. The free lunch can be quite costly, as those who chose to forgo stock investments in favor of "that yield" over a thirty or forty year career are likely finding out.
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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 8:03 pm

The question I was answering is whether the G fund provides higher yield at no extra duration risk over treasury bills and therefore gives a free lunch.

I think the answer to that is rather clear.

I was not arguing against investing in the F fund. In fact at this point I would prefer something like the F fund (or rather I invest in VGIT).
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 8:18 pm

triceratop wrote:
Wed Mar 14, 2018 8:03 pm
The question I was answering is whether the G fund provides higher yield at no extra duration risk over treasury bills and therefore gives a free lunch.

I think the answer to that is rather clear.

I was not arguing against investing in the F fund. In fact at this point I would prefer something like the F fund (or rather I invest in VGIT).
And I likewise was not arguing whether the G Fund provides a yield with no risk to principal. In that sense it is a free lunch. It does not, however, provide a "higher yield" of necessity. It might. It might not. Generally, the G Fund will provide a lower yield than a fund containing longer duration bonds, but that choice comes with principal risk and share price fluctuation.

I was not and never will claim the F Fund is a better investment or place for your money than G. I only say that it is not irrational to use a combination of the two to satisfy fixed income needs within the TSP.
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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 8:24 pm

Generally, the G Fund will provide a lower yield than a fund containing longer duration bonds, but that choice comes with principal risk and share price fluctuation.
This is false. I mean, 52wk T-Bills have a longer duration than the G fund and a lower yield. Ditto 3 month T-bills. :shock:
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 8:43 pm

triceratop wrote:
Wed Mar 14, 2018 8:24 pm
Generally, the G Fund will provide a lower yield than a fund containing longer duration bonds, but that choice comes with principal risk and share price fluctuation.
This is false. I mean, 52wk T-Bills have a longer duration than the G fund and a lower yield. Ditto 3 month T-bills. :shock:
Of course you know we're speaking about the F Fund, that is essentially the Total Bond Market Index, which is providing an SEC yield according to Vanguard this evening of 2.99%. G Fund in 2017 yielded a compounded 2.33%. What does the future hold? Who knows?
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Re: TSP bonds?

Post by nps » Wed Mar 14, 2018 8:45 pm

fortyofforty wrote:
Wed Mar 14, 2018 7:02 pm
We all know that there is no risk to principal in the G Fund. That is why it is the only fund in the entire TSP system that the government automatically enrolls workers in. Every other move is voluntary on the part of enrollees.
This is not accurate, at least not anymore. The government automatically enrolls new workers in L funds, not G.

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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 8:49 pm

So now we are talking about credit risk. Fine, but let’s be clear that the duration risk of the G fund is a free lunch: higher yield for no extra risk. If you want the higher risk of corporate bonds then buy riskier funds outside TSP to obtain the same per-dollar credit risk at lower duration (or just to note: you can gain pure credit risk without owning the Bonds and still have zero duration bond portfolio). There’s still an element of a free lunch but I don’t see what obfuscating the discussion with corporates adds.
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 8:49 pm

nps wrote:
Wed Mar 14, 2018 8:45 pm
fortyofforty wrote:
Wed Mar 14, 2018 7:02 pm
We all know that there is no risk to principal in the G Fund. That is why it is the only fund in the entire TSP system that the government automatically enrolls workers in. Every other move is voluntary on the part of enrollees.
This is not accurate, at least not anymore. The government automatically enrolls new workers in L funds, not G.
Interesting. So which L fund is chosen for a worker? How does the government know when a person will retire?

ETA: Never mind. Since November 2015 the TSP automatically chooses the L Fund that matures closest to when the employee will turn 62. At least that's better than pure G for decades.
Last edited by fortyofforty on Wed Mar 14, 2018 9:08 pm, edited 1 time in total.
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 8:58 pm

triceratop wrote:
Wed Mar 14, 2018 8:49 pm
So now we are talking about credit risk. Fine, but let’s be clear that the duration risk of the G fund is a free lunch. If you want the higher risk of corporate bonds then buy riskier funds outside TSP to obtain the same per-dollar credit risk st lower duration (or just to note: you can gain pure credit risk without owning the Bonds and still have zero duration bond portfolio). There’s still an element of a free lunch but I don’t see what obfuscating the discussion with corporates adds.
I never argued that the G Fund has any "duration risk", although that's an argument you'd like me to make since it's easily winnable.
Technically, the G Fund has no duration. It is incorrect to even speak about the "duration" of G. A bank savings account has no duration, either, by my thinking. They are "duration risk free" investments.

There are many types of risk. The G Fund purely holds the risk of not providing enough return for a comfortable retirement.

If people want the higher risk of corporate bonds, buy a corporate bond fund. If people want to try to capture the returns of the entire bond market, similar to that espoused by Three Fund Portfolio aficionados, then they can choose the F Fund. It is not obfuscation to accurately describe what is contained in the F Fund. We can pretend it contains something it does not, but that does not make it true.
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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 9:04 pm

All fixed-income products have duration. Duration is the sensitivity of principal to changes in interest rates. Since the G fund is stable value as interest rates fluctuate, its duration is zero. Your thinking is inaccurate according to the definitions of duration I am familiar with.

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?). Therefore if one wanted to replicate the dollar-per-dollar credit risk exposure with the G fund plus another means of exposure to credit risk, you would earn a higher yield for an equivalent amount of (duration + credit) risk.

That has not been disputed, to my knowledge.
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Re: TSP bonds?

Post by qwertyjazz » Wed Mar 14, 2018 9:06 pm

There is something I have not understood. If you never plan to rebalance or sell, is there an advantage of G fund vs equivalent duration government bond?

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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 9:13 pm

qwertyjazz wrote:
Wed Mar 14, 2018 9:06 pm
There is something I have not understood. If you never plan to rebalance or sell, is there an advantage of G fund vs equivalent duration government bond?

Thank you
QJ
The G Fund provides a rock-solid, stable pool of money that never decreases. Having money in the G Fund cushions the effects of downward stock market moves, but reduces the upside, as well. If you never rebalance, there is a near certainty that the risk of your TSP account will grow over time as the value of the stock portion outstrips the returns of the G Fund.

Any other bond fund has greater risk, since the G Fund has no duration. It is pure yield.
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 9:21 pm

triceratop wrote:
Wed Mar 14, 2018 9:04 pm
All fixed-income products have duration. Duration is the sensitivity of principal to changes in interest rates. Since the G fund is stable value as interest rates fluctuate, its duration is zero. Your thinking is inaccurate according to the definitions of duration I am familiar with.

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?). Therefore if one wanted to replicate the dollar-per-dollar credit risk exposure with the G fund plus another means of exposure to credit risk, you would earn a higher yield for an equivalent amount of (duration + credit) risk.

That has not been disputed, to my knowledge.
I never disputed it, but others may have that I missed. The only point I have been making consistently in this thread is that it is not necessarily wrong for an investor to choose a blend of G and F in their TSP accounts. For many government employees, the TSP is their sole investment vehicle, retirement or otherwise.

As for duration, in a mathematical sense, I don't think it's truly zero, any more than you could envision a bank account having a duration of zero. It's closer to a savings account's compound interest than a treasury bill's coupon. Angels on the head of a pin, at this point, but a good intellectual exercise.

https://www.investopedia.com/articles/p ... counts.asp
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

qwertyjazz
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Re: TSP bonds?

Post by qwertyjazz » Wed Mar 14, 2018 9:57 pm

fortyofforty wrote:
Wed Mar 14, 2018 9:13 pm
qwertyjazz wrote:
Wed Mar 14, 2018 9:06 pm
There is something I have not understood. If you never plan to rebalance or sell, is there an advantage of G fund vs equivalent duration government bond?

Thank you
QJ
The G Fund provides a rock-solid, stable pool of money that never decreases. Having money in the G Fund cushions the effects of downward stock market moves, but reduces the upside, as well. If you never rebalance, there is a near certainty that the risk of your TSP account will grow over time as the value of the stock portion outstrips the returns of the G Fund.

Any other bond fund has greater risk, since the G Fund has no duration. It is pure yield.
How is that any different than 5 year Treasuries - if you simply buy and never sell(wait until they come due and reroll then indefinitely? Of course that is not available in TSP, but say they were. I do not understand bonds on an intuitive level.

Thank you
QJ
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triceratop
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Re: TSP bonds?

Post by triceratop » Wed Mar 14, 2018 10:00 pm

fortyofforty wrote:
Wed Mar 14, 2018 9:21 pm
triceratop wrote:
Wed Mar 14, 2018 9:04 pm
All fixed-income products have duration. Duration is the sensitivity of principal to changes in interest rates. Since the G fund is stable value as interest rates fluctuate, its duration is zero. Your thinking is inaccurate according to the definitions of duration I am familiar with.

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?). Therefore if one wanted to replicate the dollar-per-dollar credit risk exposure with the G fund plus another means of exposure to credit risk, you would earn a higher yield for an equivalent amount of (duration + credit) risk.

That has not been disputed, to my knowledge.
I never disputed it, but others may have that I missed. The only point I have been making consistently in this thread is that it is not necessarily wrong for an investor to choose a blend of G and F in their TSP accounts. For many government employees, the TSP is their sole investment vehicle, retirement or otherwise.

As for duration, in a mathematical sense, I don't think it's truly zero, any more than you could envision a bank account having a duration of zero. It's closer to a savings account's compound interest than a treasury bill's coupon. Angels on the head of a pin, at this point, but a good intellectual exercise.

https://www.investopedia.com/articles/p ... counts.asp
According to the definition of duration, it clearly follows that the duration is precisely zero.

TSP employees are eligible for traditional and Roth IRAs.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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fortyofforty
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Re: TSP bonds?

Post by fortyofforty » Wed Mar 14, 2018 10:04 pm

triceratop wrote:
Wed Mar 14, 2018 10:00 pm
fortyofforty wrote:
Wed Mar 14, 2018 9:21 pm
triceratop wrote:
Wed Mar 14, 2018 9:04 pm
All fixed-income products have duration. Duration is the sensitivity of principal to changes in interest rates. Since the G fund is stable value as interest rates fluctuate, its duration is zero. Your thinking is inaccurate according to the definitions of duration I am familiar with.

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?). Therefore if one wanted to replicate the dollar-per-dollar credit risk exposure with the G fund plus another means of exposure to credit risk, you would earn a higher yield for an equivalent amount of (duration + credit) risk.

That has not been disputed, to my knowledge.
I never disputed it, but others may have that I missed. The only point I have been making consistently in this thread is that it is not necessarily wrong for an investor to choose a blend of G and F in their TSP accounts. For many government employees, the TSP is their sole investment vehicle, retirement or otherwise.

As for duration, in a mathematical sense, I don't think it's truly zero, any more than you could envision a bank account having a duration of zero. It's closer to a savings account's compound interest than a treasury bill's coupon. Angels on the head of a pin, at this point, but a good intellectual exercise.

https://www.investopedia.com/articles/p ... counts.asp
According to the definition of duration, it clearly follows that the duration is precisely zero.

TSP employees are eligible for traditional and Roth IRAs.
As long as you'd also allow that a bank savings account also has a duration of precisely zero, then you can have it be zero. It's late, and the mathematical formulas are making my head spin. :sharebeer
"In a time of universal deceit, telling the truth becomes a revolutionary act." - George Orwell | There are many roads to doublin'. | Original Vanguard Diehard

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tadamsmar
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Re: TSP bonds?

Post by tadamsmar » 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.

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