Bonds, TSP G Fund

[WM]

So I'm finally getting a little more serious about asset allocation, and looking to branch out from the S&P Index, US small cap index, and foreign index that we're currently invested in. Over the next couple years I'd like to add some US bonds, emerging markets, REITs, and possibly foreign bonds. Our target FIRE date is about 7 years away.

My question at the moment is about bonds. In general, it doesn't seem like the best time to be buying bonds, but DH has a TSP, which means we could use the G Fund.

This is long-term (decades) money, and we'd be DCA-ing into G over the next year or so. This would be instead of continuing to add to the C and I funds, which are currently over-weighted relative to where I'd like to be.

Any reason to wait?

 

[rgarling]

the G fund isn't really a bond fund and has negligible risk. Sort of like a high paying money market fund. There is no reason to wait.

If you want bonds, use the F fund. Since you can't know the future, there is no reason to wait to DCA into that fund either.

 

[WM]

the G fund isn't really a bond fund and has negligible risk. Sort of like a high paying money market fund.

Hmmm, yes, I've had a little trouble understanding exactly what the G fund is, this description helps clarify. But from the searches I did, people here seem to use the G fund as a bond stand-in. Is there a benefit to the F Fund in addition to or instead of the G fund?

 

[Texarkandy]

I moved all to 100% G-Fund late spring of 07, been looking to get back into C or I so I can maybe get some earnings (or more probably L2020) but cant' decide when - thoughts, anyone?

 

[W2R]

Hmmm, yes, I've had a little trouble understanding exactly what the G fund is, this description helps clarify. But from the searches I did, people here seem to use the G fund as a bond stand-in. Is there a benefit to the F Fund in addition to or instead of the G fund?

Here is information from the TSP about what the G Fund really is:

http://www.tsp.gov/rates/fundsheet-gfund.pdf

Among other things this document says:

• The G Fund offers the opportunity to earn rates of interest similar to those of long-term Government securities but without any risk of loss of principal and very little volatility of earnings.

• The objective of the G Fund is to maintain a higher return than inflation without exposing the fund to risk of default or changes in market prices.

• The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government. Thus, there is no “credit risk.”

• The interest rate resets monthly and is based on the weighted average yield of all outstanding Treasury notes and bonds with 4 or more years to maturity.

• Earnings consist entirely of interest income on the securities.

• Interest on G Fund securities has, over time, outpaced inflation and 90-day T-bills.

So, basically you have short term U.S. Treasury securities with long term yield and no risk to the principal. The G Fund is considered to be a significant benefit to federal employees that is not available to the general public and its availability to you is part of your benefits package.

 

[yakers]

If you look at how the G fund functions within the Lfund series you will see that the G fund is a great risk reducer. Sort of like 90%C and 10%G equal 70 or 80% C and 30 or 20% F. Some people on the Bogleheads site regard it as 'the only bond fund you need' but the F has even less correlation with the C fund than the G fund, so maybe some F is a good idea. Ultimately I like the L funds, I chose the L2020 even though I retired this March. I expect to start drawing on it a bit in a year or so. It is very possible that some other fund will do better than an L fund, but the Lfund keeps me from trying to guess which one it will be.

 

[martyb]

I'm 4 1/2 yrs out from retirement, and I'm now all in the L-2030. I'm also a CSRS employee (old defined benefit system) and don't get any govt matching for my TSP. I can live with that though!

 

[ats5g]

Hmmm, yes, I've had a little trouble understanding exactly what the G fund is, this description helps clarify. But from the searches I did, people here seem to use the G fund as a bond stand-in. Is there a benefit to the F Fund in addition to or instead of the G fund?

If the F fund reacts differently than the C, S, or I funds in rising/falling interest rates, then the F fund will be the better diversifier [like 00-02]. However, if the F fund moves in the same direction as the C, S, or I funds in rising/falling interest rates, then the G fund will be the better diversifier. When in doubt own both the F and G in addition to the C, S, and I funds.

- Alec

 

[WM]

When in doubt own both the F and G in addition to the C, S, and I funds.

That's what I'm thinking!

 

[yakers]

That's what I'm thinking!

So pick the LFund you most like