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401K Stable Value or IRA CD/Treasuries?
Old 06-27-2022, 05:10 PM   #1
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401K Stable Value or IRA CD/Treasuries?

I would like some feedback on wether or not this is a reasonable approach and/or suggestions for a "better" idea.

background:
As a "lean FIRE" that was involuntarily retired in 2016 at 55yo, I don't have any room to screw this up, so I'd classify myself as extremely risk averse.

I've had my 401K representing about 1/3 of my net worth sitting in a Stable Value Fund which has now dropped to 2.14% per year. The SVF might creep back up, it might not. I expect rates to whipsaw lower "sooner rather than later" thus I doubt the SVF will get to current CD/Treasury/Agency levels before the elevator goes back down. FYI the SVF is the only fund out of more than 200 available in the 401k hasn't lost value YTD.

Currently:

10 year brokered CDs are 3.7% (update: 10yr sold out/unavailable today). 20yr Agency/GSE bonds are at 5% (update: now down to 4.56%) (but agency bonds all appear to be callable)

The idea:
I'm thinking of rolling my 401K to my IRA and just plop it into either longer CDs or Treasuries/Agencies with a few shorter durations laddered in for tax/income managment between now and RMD time in 10.5 years. This is a one-way street as once the $ is out of the 401K it can't go back in and SVFs aren't available outside of the 401K.

Long term CD/Treasuries wouldn't be a flexible as the SVF, but other than tax/ACA management of income I don't see us needing to do a big withdrawal on the horizon. (I might have to spike income taxes to take advantage of a solar tax credit, but I can keep 10% of the 401K transfer in real short duration to cover that).

What say you? keep it in the 401K SVF or move it to an IRA for longer term CD/Treasuries? Or?
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Old 06-27-2022, 05:46 PM   #2
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A SVF paying 2.14% wouldn't be particularly attractive to me. I like your plan. Perhaps a short ladder to start with and then lengthen the ladder out to 5-10 years as rates seem to be plateauing.

If once you go long if rates keep rising and the values of your bonds decline will you still be able to sleep at night knowing that they are generating nice income for you?
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Old 06-27-2022, 07:11 PM   #3
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I recently sold off all of my SVF in my 401k and instead bought TIPS. Since my 401k didn’t have TIPS, I bought something else in the 401k and sold something similar to that in a different IRA and bought the TIPS in the IRA.
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Old 06-27-2022, 09:22 PM   #4
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Wait until the July rate hike?
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Old 06-28-2022, 05:00 AM   #5
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Can't say that I have enough expertise to answer this. But you have a rate of 2.14% in the SVF, and I'm not sure how those rates will go in the next ten years. The 2nd decision is buying fixed rate at 3.6% or something in that ballpark for 10 years (or a ladder).

1) Is it worth an immediate move to pick up 1.5% interest now?
2) How will I feel about 5% interest rates possibly in the future?

We have a similar question coming up. There is a guaranteed interest investment paying 3.00% annually in a 403(b) account. The contract rate per a new prospectus says this will rise to 3.05% in 2031. Perhaps that outlook from this insurance company is good guidance for you. IOW, staying in the SVF is not desirable. What you do next is not something I can answer, but I'm interested in all the advice on your question.
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Old 06-28-2022, 05:16 AM   #6
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We have 30% in an SVF, but will not move it to an IRA, as I like the the SVF investment as another choice for us. Not an easy call for you though.
What is the yield history of your SVF?
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Old 06-28-2022, 07:21 AM   #7
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I'd also like to know the history. If it's been on the low side all along, there's not a high expectations it will ever be good. I'll look up the historical rates of mine.
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Old 06-28-2022, 08:52 AM   #8
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Look for State of Montana Introduction to Stable Value pdf. Page 7 has a 20-year chart for two funds.
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Old 06-28-2022, 08:58 AM   #9
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YearsRate
20153.49%
20163.34%
20173.25%
20183.32%
20193.66%
20203.38%
20213.26%
I just divided the balance at the beginning of the month with the interest credit on that month and added the 12 numbers together to get annual figures. This SVF is really stable...the roughly 0.27% per month is continuing in 2022, so we're on target to hit 3.2% or so for 2022.

It appears Spock's 2.14% is closer to the Hueler Stable Value Index as recorded on the referenced PDF, whereas mine seems to be a point above that.

The blue line is the Hueler Stable Value Index and the othe is money market.
Attached Images
File Type: jpg chart.jpg (13.3 KB, 123 views)
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Old 06-28-2022, 09:12 AM   #10
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Quote:
Originally Posted by Spock View Post
I would like some feedback on wether or not this is a reasonable approach and/or suggestions for a "better" idea.

background:
As a "lean FIRE" that was involuntarily retired in 2016 at 55yo, I don't have any room to screw this up, so I'd classify myself as extremely risk averse.

I've had my 401K representing about 1/3 of my net worth sitting in a Stable Value Fund which has now dropped to 2.14% per year. The SVF might creep back up, it might not. I expect rates to whipsaw lower "sooner rather than later" thus I doubt the SVF will get to current CD/Treasury/Agency levels before the elevator goes back down. FYI the SVF is the only fund out of more than 200 available in the 401k hasn't lost value YTD.

Currently:

10 year brokered CDs are 3.7% (update: 10yr sold out/unavailable today). 20yr Agency/GSE bonds are at 5% (update: now down to 4.56%) (but agency bonds all appear to be callable)

The idea:
I'm thinking of rolling my 401K to my IRA and just plop it into either longer CDs or Treasuries/Agencies with a few shorter durations laddered in for tax/income managment between now and RMD time in 10.5 years. This is a one-way street as once the $ is out of the 401K it can't go back in and SVFs aren't available outside of the 401K.

Long term CD/Treasuries wouldn't be a flexible as the SVF, but other than tax/ACA management of income I don't see us needing to do a big withdrawal on the horizon. (I might have to spike income taxes to take advantage of a solar tax credit, but I can keep 10% of the 401K transfer in real short duration to cover that).

What say you? keep it in the 401K SVF or move it to an IRA for longer term CD/Treasuries? Or?
NO WAY would I go long term treasuries or CD's at *current* rates (which are under the rate of inflation and even under consumers inflation expectations. But that's just me.

Suck it up, keep durations short, wait for this to play out a bit.
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Old 06-28-2022, 10:01 AM   #11
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I never had any regrets going from a 401k to an IRA. Opened up more choices.

No experience with SVF's. I have TIPS paying +1.0% inflation above inflation and they are a comfort in the current inflation environment. Currently you can get TIPS for 5 years at about 0.5%. I am waiting to see if they get back up to 1.0% to pull the trigger and buy more. Here is the link to the TIPS history: https://fred.stlouisfed.org/series/DFII5
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Old 06-28-2022, 10:15 AM   #12
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Originally Posted by Phroig View Post
Wait until the July rate hike?
I've got a nice chuck of money just sitting in my tIRA that I plan to use to start building a CD ladder after the next Fed rate hike, probably in late July... I'm tempted to start it now but I expect a nice jump in rates after the next Fed meeting so I might as well wait another month at this point. I just looked at Schwab's CD broker services and saw rates at big named financial institutions in the 3.25 to 3.3 % range, so I fully expect that to hit 4% or more in the next 30 to 45 days. These are for fixed rate CD's, 12 to 36 month, non callable, new issue jumbo CD's (all FDIC insured.). Time for me to get back into the CD market. YMMV!
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Old 06-28-2022, 10:59 AM   #13
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Originally Posted by Dtail View Post
We have 30% in an SVF, but will not move it to an IRA, as I like the the SVF investment as another choice for us. Not an easy call for you though.
What is the yield history of your SVF?

The fund sheet doesn't show history, just "average annual total return" defined as "Quarter-end Average annual total return is a rate of return on a quarterly basis that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period."


ETA: the table formatting got all horked... sorry.
1Yr 3yr 5yr 10yr Life

Stable Value 2.15% 2.55% 2.75% 2.86% 5.58%
FTSE 3mo T-bill 0.13% 0.65% 1.09% 0.61% 3.12%

Morningstar SV Index 1.68% 2.08% 2.13% 1.98% 4.97%

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Old 06-28-2022, 11:03 AM   #14
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Originally Posted by pb4uski View Post
A SVF paying 2.14% wouldn't be particularly attractive to me. I like your plan. Perhaps a short ladder to start with and then lengthen the ladder out to 5-10 years as rates seem to be plateauing.

If once you go long if rates keep rising and the values of your bonds decline will you still be able to sleep at night knowing that they are generating nice income for you?
Ability to sleep at night depends on how far they decline...
I'm fine with missing the top by 10% (2.7% vs. 3%), but would be real happy if I miss 2.7% vs. 5/6/7/8%.
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Old 06-28-2022, 11:40 AM   #15
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Originally Posted by copyright1997reloaded View Post
NO WAY would I go long term treasuries or CD's at *current* rates (which are under the rate of inflation and even under consumers inflation expectations. But that's just me.

Suck it up, keep durations short, wait for this to play out a bit.
I've been doing a lot of reading on this (nothing else to do these days) and the arguments bar-bell into two camps with a few derivatives:
  • 1: Volker-style: "8.6% inflation (under reported) means the Fed needs to get rates to 8.6% just to be neutral and higher than that to dent inflation, so rates will go much higher".
    • 1A. "Reducing the Feds balance sheet/QT counts as raising rates". something like each $100B = 0.25%... Fed is planning 95B per month of QT. The Fed has never had this lever before 2008ish, so this is a new variable that slants comparisons to the 1980s.
  • 2: The Fed is trapped by off the charts debt levels: This camp states that raising rates much beyond 3ish% without either a) destroying the economy or b) raising debt service costs above the entire budget (probably needs higher than 3%, but certainly less than Volker-style rates).
My personal guess is that derivatives of Scenario #2 is more likely than #1.
  • Even if the Fed raises rates the rest of this year, those raises will mostly jack the shorter end (<2-5Yr) of the curve as the longer end is inverted and not moving up much (forecasting future rate cuts vs. rate increases).
  • In the past the Fed has stated they WANT (need?) inflation and claims to target 2% inflation with "higher excursions OK to make up for lost time". They've been trying to create inflation for the last decade plus and I don't think they are going to risk killing inflation off. They'll err on leaving inflation too high vs. risking it dropping too low.
    • Some cynical pundits suggesting the Fed will declare victory on inflation by raising the inflation target to 3%(?).

As far as CDs/T's being bad now vs. inflation, except for 2015 and 2018, real rates have been negative for the last 10 years.
https://www.longtermtrends.net/real-interest-rate/

It's just guessing. Place your bets and spin the wheel. Except I hate gambling/hoping/wishing.
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Old 06-28-2022, 12:50 PM   #16
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Quote:
Originally Posted by Spock View Post
I've been doing a lot of reading on this (nothing else to do these days) and the arguments bar-bell into two camps with a few derivatives:
  • 1: Volker-style: "8.6% inflation (under reported) means the Fed needs to get rates to 8.6% just to be neutral and higher than that to dent inflation, so rates will go much higher".
    • 1A. "Reducing the Feds balance sheet/QT counts as raising rates". something like each $100B = 0.25%... Fed is planning 95B per month of QT. The Fed has never had this lever before 2008ish, so this is a new variable that slants comparisons to the 1980s.
  • 2: The Fed is trapped by off the charts debt levels: This camp states that raising rates much beyond 3ish% without either a) destroying the economy or b) raising debt service costs above the entire budget (probably needs higher than 3%, but certainly less than Volker-style rates).
My personal guess is that derivatives of Scenario #2 is more likely than #1.
  • Even if the Fed raises rates the rest of this year, those raises will mostly jack the shorter end (<2-5Yr) of the curve as the longer end is inverted and not moving up much (forecasting future rate cuts vs. rate increases).
  • In the past the Fed has stated they WANT (need?) inflation and claims to target 2% inflation with "higher excursions OK to make up for lost time". They've been trying to create inflation for the last decade plus and I don't think they are going to risk killing inflation off. They'll err on leaving inflation too high vs. risking it dropping too low.
    • Some cynical pundits suggesting the Fed will declare victory on inflation by raising the inflation target to 3%(?).

As far as CDs/T's being bad now vs. inflation, except for 2015 and 2018, real rates have been negative for the last 10 years.
https://www.longtermtrends.net/real-interest-rate/

It's just guessing. Place your bets and spin the wheel. Except I hate gambling/hoping/wishing.
Thanks for the thoughtful analysis. I also think the Fed is trapped given debts levels. All they can do is waive their hands (.25, .75) a couple/few times and talk tough hoping that causes enough demand destruction to bring inflation expectations down.

As far as QT, they haven't done much yet. In fact, their balance sheet has still be rising/staying fairly even:
https://fred.stlouisfed.org/graph/?g=NXbd

I'm not saying rates are going to 8.5% on CD's/treasuries, just that 3.25% on the 5 or 3.3% on the 30 isn't likely to be peak.

I still think they (the Federal reserve) will declare victory sooner rather than later and pivot...because they can't fix the inherit problem which is an asset bubble across many classes...and because they will fear repeating the great depression, they will instead avoid it at all costs by printing, hoping that time lets them get out of the issue.
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Old 06-28-2022, 02:20 PM   #17
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Originally Posted by Spock View Post
The fund sheet doesn't show history, just "average annual total return" defined as "Quarter-end Average annual total return is a rate of return on a quarterly basis that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period."


ETA: the table formatting got all horked... sorry.
1Yr 3yr 5yr 10yr Life

Stable Value 2.15% 2.55% 2.75% 2.86% 5.58%
FTSE 3mo T-bill 0.13% 0.65% 1.09% 0.61% 3.12%

Morningstar SV Index 1.68% 2.08% 2.13% 1.98% 4.97%
Nice rate from a lifetime perspective.
I use CD's/MYGA's as part of my Fixed Income allocation as well as SVF.
As for now, I will keep a healthy portion in my SVF and am content to lose out on some upcoming yield increases on the CD's/MYGA's.
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Old 06-28-2022, 02:58 PM   #18
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Quote:
Originally Posted by Spock View Post
The fund sheet doesn't show history, just "average annual total return" defined as "Quarter-end Average annual total return is a rate of return on a quarterly basis that, if achieved annually, would have produced the same cumulative total return if performance had been constant over the entire period."


ETA: the table formatting got all horked... sorry.
1Yr 3yr 5yr 10yr Life

Stable Value 2.15% 2.55% 2.75% 2.86% 5.58%
FTSE 3mo T-bill 0.13% 0.65% 1.09% 0.61% 3.12%

Morningstar SV Index 1.68% 2.08% 2.13% 1.98% 4.97%
 1Yr3yr5yr10yrLife
Stable Value2.15%2.55%2.75%2.86%5.58%
FTSE 3mo T-bill0.13%0.65%1.09%0.61%3.12%
Morningstar SV Index1.68%2.08%2.13%1.98%4.97%
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Old 06-28-2022, 05:54 PM   #19
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Originally Posted by target2019 View Post
1Yr 3yr 5yr 10yr Life
Stable Value 2.15% 2.55% 2.75% 2.86% 5.58%
FTSE 3mo T-bill 0.13% 0.65% 1.09% 0.61% 3.12%
Morningstar SV Index 1.68% 2.08% 2.13% 1.98% 4.97%
How'd you do that
I tried the TABLE-/TABLE tag pair same as shown now in the editor quote of your post and it looked like absolute garbage in the preview.
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Old 06-28-2022, 05:56 PM   #20
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Nice rate from a lifetime perspective.
I use CD's/MYGA's as part of my Fixed Income allocation as well as SVF.
As for now, I will keep a healthy portion in my SVF and am content to lose out on some upcoming yield increases on the CD's/MYGA's.
If I may ask, what is your SVF paying in comparison?
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