G fund, why not everybody?

[F4mandolin]

I don't know the answer. I certainly used it while I was working.....but is there a good reason why there isn't a fund like this that is open to everybody? Only reason that comes easily to mind is that the TSP expenses are so low....in which case a "company" might not really make any money. I know I'm hardly the only one who has some cash sitting around that I will need to use in a couple of years (about $50K) and to be able to just "park it" in a fund that will return a little over 2% right now would be lovely. The fund beats inflation so while you won't get rich....you won't lose money.




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[martyb]

I don't think the G fund is beating inflation.

 

[nvestysly]

I don't know anything about the G fund since I was never in the TSP. I guess I like the idea in general.

I think there are alternatives out there - or at least something that supposedly covers inflation. DW and I use the I-bonds program. We put money in our I-bond accounts every week. Periodically we go through and cash out bonds that we use for house improvements, car repairs, etc. For us it's a good place to park some of our cash.

 

[RockyMtn]

Is the G fund similar to Stable Value type funds?

 

[Tadpole]

So when the government is split and can't come to an agreement to raise the debt ceiling, there will be a giagundous G-fund pot of new deposits to delay until the ceiling is raised. No harm, never has been. But a lot of screaming, perhaps.

 

[martyb]

So when the government is split and can't come to an agreement to raise the debt ceiling, there will be a giagundous G-fund pot of new deposits to delay until the ceiling is raised. No harm, never has been. But a lot of screaming, perhaps.

I'd say that's a pretty good assumption. That's what happens now with federal employee's G-fund accounts from time to time.

 

[F4mandolin]

I don't think the G fund is beating inflation.

Last 10 years ( well, kind of..couldn't find the rate from 2013...didn't look very hard though) of G fund returns, followed by the last 11 years of inflation.

Just looked and the G fund is now up to 2.5%

G Fund
2003 4.11%
2004 4.30%
2005 4.49%
2006 4.93%
2007 4.87%
2008 3.75%
2009 2.97%
2010 2.81%
2011 2.45%
2012 1.47%
10 Yr Compound 3.61%





Inflation- 11 years average is 2.38%
2003- 2.3%
2004- 2.7%
2005- 3.4%
2006- 3.2%
2007- 2.8%
2008- 3.8%
2009- -.4%
2010- 1.6%
2011- 3.2%
2012- 2.1%
2013- 1.5%

 

[martyb]

I think the 2013 G fund rate was 1.89%. Thanks for the comparison. I admit I was shooting from the hip. Facts are always better!

 

[Greg V]

Per the TSP site: "The G Fund invests exclusively in a nonmarketable short-term U.S. Treasury security that is specially issued to the TSP. The earnings consist entirely of interest income on the security."

Also of note from the site: "The G Fund interest rate calculation is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity. As a result, participants who invest in the G Fund are rewarded with a long-term rate on what is essentially a short-term security."

It is designed to only be part of the Federal Thrift Savings Plan and a commercial company would not have access to this unique type of fixed income investment

For those who can invest through TSP, it's an excellent option to include in your portfolio mix, particularly in today's interest rate environment. It is a low risk investment, though not completely without risk. Its NAV can never decrease, but may not keep up with inflation depending on the numbers.

 

[brewer12345]

Is the G fund similar to Stable Value type funds?

Yes, very similar. The main difference is that stable value funds are guaranteed by a variety of financial institutions and the G fund is guaranteed by the feddle gubmint.

 

[2B]

I don't think the question is why not G fund for everyone but why not the whole TSP for everyone?

 

[Tadpole]

I don't think the question is why not G fund for everyone but why not the whole TSP for everyone?

The TSP stock index funds have a very low rate that would "compete" too successfully with private industry. The net result of giving general access would be a push from Wall Street for "privatization" of the funds resulting in the same thing that exists now except the federal workers would/might have higher fees on their investments. I recall that a critter once tried to get the TSP into the hands of "women owned small business". That would probably be quite expensive even compared to Vanguard.

 

[2B]

The TSP stock index funds have a very low rate that would "compete" too successfully with private industry. The net result of giving general access would be a push from Wall Street for "privatization" of the funds resulting in the same thing that exists now except the federal workers would/might have higher fees on their investments. I recall that a critter once tried to get the TSP into the hands of "women owned small business". That would probably be quite expensive even compared to Vanguard.

If a simple EO lets the G fund become available, it's a small step to include the rest. The $15,000 limit may help quiet the wolves of Wall Street but the shock in the level of fees when people are forced to move may shake up the industry. Compared to the TSP, Vanguard is pillaging and plundering their clients accounts.

 

[ziggy29]

It's an interesting concept. I guess my first question is: Does offering the G Fund to feds under TSP cost anything to the Treasury, or is it a net gain in terms of increasing demand for short-term Treasuries? If not, the next question would be: Would there be enough of these securities available to the general public if the G Fund were made available to others outside of TSP? I mean, this seems like a "money market fund killer" and it would be hard to imagine many billions, maybe even tens or hundreds of billions, leaving money market funds for something like this. If there weren't sufficient securities available for this much money, they'd either have to close the fund or the prices on these securities would spike... and the yields plummet.

I also think the private mutual fund industry (especially those offering large money market funds) would object and throw theor clout in Washington around to stop it.

In reality, though there are purchasing limits, if it's not often beating inflation (or not by much)... it seems I-bonds would do just about as well, and could also be held in non-retirement accounts with tax deferral until redeemed.

 

[brewer12345]

It's an interesting concept. I guess my first question is: Does offering the G Fund to feds under TSP cost anything to the Treasury, or is it a net gain in terms of increasing demand for short-term Treasuries? If not, the next question would be: Would there be enough of these securities available to the general public if the G Fund were made available to others outside of TSP? I mean, this seems like a "money market fund killer" and it would be hard to imagine many billions, maybe even tens or hundreds of billions, leaving money market funds for something like this. If there weren't sufficient securities available for this much money, they'd either have to close the fund or the prices on these securities would spike... and the yields plummet.

I also think the private mutual fund industry (especially those offering large money market funds) would object and throw theor clout in Washington around to stop it.

In reality, though there are purchasing limits, if it's not often beating inflation (or not by much)... it seems I-bonds would do just about as well, and could also be held in non-retirement accounts with tax deferral until redeemed.

The G fund is basically a gubmint stable value fund for a specific group of workers. As such, it is worth remembering a bit about stable value funds. When insurers and other financial institutions either sell paper into these funds or extend a guarantee on a pool of assets they (are supposed to) carefully underwrite the plan participant pool. Why? Consider when these guarantees might end up costing insurers money. You have to have a combination of a decline in the value of the underlying bonds (probably due to an increase in interest rates) at the same time as plan participants want to yank their money out of the stable value fund. The behavior of the bonds under various interest rate scenarios is relatively easy to evaluate. The behavior of plan participants is a good deal tougher to figure out. If there were a stable value fund//G fund open to one and all, you would have millions of people like me swinging 6 figure balances in and out of the fund based on market realities. Since the success of these plans inevitably hinge on plan participants behaving like sheep and never exercising their options with economic optimality, either the returns offered would have to fall far and fast, or the insurer/gubmint holding the bag would take beating after beating after beating.

 

[karluk]

Since the success of these plans inevitably hinge on plan participants behaving like sheep and never exercising their options with economic optimality, either the returns offered would have to fall far and fast, or the insurer/gubmint holding the bag would take beating after beating after beating.

Brewer, I would be very interested in hearing your thoughts about how to use stable value funds "with economic optimality". I have thought about this a little, and my impression is that after interest rates rose last year investors should have started selling their stable value funds and bought bonds with similar risk charactersitics to the bonds being held by the stable value fund. The idea is that the bonds in the stable value fund had probably declined in value, but the insurance underwriters were guaranteeing the bonds at par. If so, then investors could have in effect sold bonds at par and repurchased them elsewhere below par.

I'm not sure this is right. I know of no way to tell what is the underlying market value of the bonds in a stable value fund. As far as I know, the funds don't make this information available publicly. But, if the reasoning is correct, there is abundant evidence that investors were in fact doing the exact opposite - selling bonds, going to shorter maturities and moving more money into stable value funds. I wouldn't characterize this as sheep-like behavior. After all, holding bonds right now exposes bonds to interest rate risks and many people assumed that an asset class that had been declining in value would decline some more. But the recent bond rally shows that the rewards may have been worth the risk.

 

[brewer12345]

Karluk, I am going to put together a blog post on stable value funds in the near future where I can cover the subject in some depth. Will let you know when I get it out.

 

[Koolau]

Karluk, I am going to put together a blog post on stable value funds in the near future where I can cover the subject in some depth. Will let you know when I get it out.

brewer, will also be very interested in your thoughts on Stab. Val. funds - especially best ways to "play" them. I have kept a significant balance through the years. Though the return is pathetic compared to stocks on a tear, the "stability" as well as the flexibility (of my particular plan) is very nice to have. As you mentioned, it is possible to move money into and out of the Stab. Val. fund at least somewhat at will. My 401(k) puts far more restrictions on OTHER of their funds to limit "day trading". On the Stab. Val. (in and out), not so much.

Now that I've got it "made", my personal bias is for a smooth(er) ride at not too steep an angle. I cover inflation risks in other ways (including some exposure to equities). Additionally, though lagging, Stab. Val. plans (mine, anyway) does eventually catch up to inflation (though the lag can "cost" in the mean time). YMMV

 

[dontworry]

G what? Couldn't resist!!!

 

[brewer12345]

brewer, will also be very interested in your thoughts on Stab. Val. funds - especially best ways to "play" them. I have kept a significant balance through the years. Though the return is pathetic compared to stocks on a tear, the "stability" as well as the flexibility (of my particular plan) is very nice to have. As you mentioned, it is possible to move money into and out of the Stab. Val. fund at least somewhat at will. My 401(k) puts far more restrictions on OTHER of their funds to limit "day trading". On the Stab. Val. (in and out), not so much.

Now that I've got it "made", my personal bias is for a smooth(er) ride at not too steep an angle. I cover inflation risks in other ways (including some exposure to equities). Additionally, though lagging, Stab. Val. plans (mine, anyway) does eventually catch up to inflation (though the lag can "cost" in the mean time). YMMV

All in good time. Stable value is my next topic as I just completed a post on LTC insurance that will publish on Monday. Will get started on stable value next.

A really common restriction on stable value funds is what is known as an "equity wash." That means that you cannot trade directly between stable value and a bond or money market fund. Of course if you have a diversified portfolio with equities, bonds and stable value it is child's play to avoid such a restriction: Sell equity fund, buy bond fund, sell stable value fund, buy equity fund. Net result is you sold stable value to buy bonds while avoiding the restrictions of the equity wash provision.