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trying to preserve lump sum amount from interest rate hikes in future
Old 11-18-2019, 11:00 AM   #1
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trying to preserve lump sum amount from interest rate hikes in future

Hi all, new member here. I have 30+ years with a Dow 30 company. I have a 401k, IRA and pension due with lump sum option available. Due to the recent unprecedented low PBGC and GATT interest rates the lump sum value of my pension has jumped up significantly (+ approx 150k in last 6 months) to high 6 figures. I would possibly like to retire within a few years and am wondering if there is something I can do with a portion of my IRA/401k funds to hedge against future higher interest rates eroding the large current lump sum amount. Any ideas? Thanks in advance for any input.
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Old 11-18-2019, 11:14 AM   #2
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Many different hedges are possible. One is to short treasuries via something like ticker TBT.
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Old 11-18-2019, 11:27 AM   #3
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Just roll into an IRA and buy the longest TIPS, lowest coupon you can find. The bond desk at Schwab, Fido, Vanguard can help you. The issue is not so much interest rates as inflation, though they are kind of two sides of the same coin.

From a big picture point of view this approach may be unnecessarily conservative, but it's the answer to the question you asked.
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Old 11-18-2019, 11:41 AM   #4
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Many different hedges are possible. One is to short treasuries via something like ticker TBT.
1. Shorting TBT is likely not a very good idea - it's a 2x inverse. It uses leverage, has high ER, and is risky. It's questionable whether the IRA/401K would even allow doing that.

2. If you're looking at shorting TBT, why in the world wouldn't you simply go long TLT or TLH? TLT and TLH ER is 0.15% whereas TBT is 0.9%. If shorting TBT then you're also going to pay fees for shorting it, again, if it's even allowed in the IRA/401K.
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Old 11-18-2019, 01:45 PM   #5
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Shorting? TLT? TLH? Really? With a "high six figures" lump sum there is no reason for the OP to play games (high maintenance and probably not allowed by the custodian anyway) or to pay someone to buy govvies. If the OP wants govvies he/she can easily buy them directly on the auctions or on the secondary market. There is no investment judgment required, so no reason to buy a fund and pay a fee. Govvies are as easy to buy as stocks or maybe easier. No reason to fear it.
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Old 11-18-2019, 02:20 PM   #6
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If I were you, I would stop worrying about the lump sum amount of my pension and think of it as a pension (monthly payment) instead, as long as you feel that your company has a good future ahead of it. This provides you with more diversified retirement income. If you take the lump sum and the stock market goes down, then your 401K, IRA, and lump sum all go down together. If you take it as a pension it will never go down unless the company has financial problems.
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Old 11-18-2019, 02:52 PM   #7
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a pension it will never go down unless the company has financial problems.
cf., General Electric - yes, I know they have not reneged on pensions yet.

How many Dow 30 companies will get in serious trouble in the next 30 years?
I am one of those "take control of your money" people.
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Old 11-18-2019, 05:27 PM   #8
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Shorting? TLT? TLH? Really? With a "high six figures" lump sum there is no reason for the OP to play games (high maintenance and probably not allowed by the custodian anyway) or to pay someone to buy govvies. If the OP wants govvies he/she can easily buy them directly on the auctions or on the secondary market. There is no investment judgment required, so no reason to buy a fund and pay a fee. Govvies are as easy to buy as stocks or maybe easier. No reason to fear it.
I don't disagree with you. I was merely pointing out that shorting TBT is not something most folks would/should/could do and if going with an ETF you would simply purchase those that are long the bonds, not short the inverse.

As simplistic as buying treasuries may be, it is not for everyone. Some may prefer the ETF for the diversification it provides across treasuries. It may be important for some wishing to set up automatic investment plans or dividend reinvestment which can be done with ETFs but not when directly owning treasuries. Even though treasuries are very liquid, the ETFs are more liquid.

Me, I have no issue buying/holding the treasury bond. However, I can appreciate how it is not for everyone.
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Old 11-18-2019, 05:40 PM   #9
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I recommended buying TBT as a hedge, not shorting it. The OP wants an interest rate hedge, that's one of many.
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Old 11-18-2019, 05:54 PM   #10
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I recommended buying TBT as a hedge, not shorting it. The OP wants an interest rate hedge, that's one of many.
Got it - I misread.
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Old 11-18-2019, 06:16 PM   #11
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I don't disagree with you. I was merely pointing out that shorting TBT is not something most folks would/should/could do and if going with an ETF you would simply purchase those that are long the bonds, not short the inverse.

As simplistic as buying treasuries may be, it is not for everyone. Some may prefer the ETF for the diversification it provides across treasuries. It may be important for some wishing to set up automatic investment plans or dividend reinvestment which can be done with ETFs but not when directly owning treasuries. Even though treasuries are very liquid, the ETFs are more liquid.

Me, I have no issue buying/holding the treasury bond. However, I can appreciate how it is not for everyone.
All true, but I wanted to flag to the OP that bond funds are not the only option and IMO are a very poor option. Because govvies are considered to be risk free, there is no need for diversification or expertise in selection like there would be in corporates, junk, etc. All govvies are backed by the full faith and credit of the US government as are, of course, FDIC-backed bank CDs.

IMO "high six figures" money is too much money to pay a "manager" that is little more than a brainless computer program. Going the mutual fund route also precludes the buyer from selecting maturities to suit his needs, like possibly a bond ladder.

I do recommend bond mutual funds when relatively tiny money is involved, especially if we're talking junk, international, etc. and/or when the investor is very naive. But nobody amasses a lump in the high six figures by being a dummy. I believe it's almost certain that the OP can easily learn what he/she needs to know with just a little reading and calling his/her favorite bond desk with questions. Thus saving thousands in fees.
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Old 11-19-2019, 09:32 AM   #12
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There are other interest rate hedges too like bank stocks, perhaps in the form an index fund such as VFAIX. This can work as a hedge because financials tend to do well in a rising rate environment.
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