The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: JJ- on July 22, 2021, 10:52:42 AM
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I have been reading lately about adding some sort of bond fund to the mix of our investments in preparation for next year's AA. I've mentioned in a couple of other threads that I used to consider a future pension "kind of like" bond funds but am coming around that it's just better to consider it future income and manage portfolio separate of that.
Thanks to some research by top investment hats around here I've been evaluating a couple of different portfolios and many of them include a bond component. There are some recommendations to keep it simple and go with a total bond fund, slice it up, or just stick with LTT's. There's one little advantage I have being a fed and having access to the TSP and the G fund. I've been doing a little reading about the F and G funds, and I'm not advanced/skilled/knowledged enough to understand the difference between these two funds. I saw a quote from a long dead bogleheads thread and wanted to know if somebody here could point me to some resources that wouldn't rack my brain to understand why the G fund is so desirable compared to other bond funds.
The G fund has the yield of a Intermediate term Treasury fund and the risk of a government money market fund. if you don't understand the incredible free lunch advantage of that, you shouldn't be investing in fixed income until you do understand that.
Are there basic blog posts/sites that describe the various bond market descriptors and how I could start to understand the incredible free lunch there?
For the TDF that Blackrock manages for TSP investors, the fixed income slice for G fund vs F fund is 85%/15% or more for those closest to retirement and gets closer to 50/50 for the farthest out (TD 2065).
From the TSP website:
G Fund : Ensure preservation of capital and generate returns above those of short-term U.S. Treasury securities. Consider investing in the G Fund if you would like to have all or a portion of your TSP account completely protected from loss. If you choose to invest in the G Fund, you are placing a higher priority on the stability and preservation of your money than on the opportunity to potentially achieve greater long-term growth in your account through investment in the other TSP funds.
F Fund: Match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. F Fund investors are rewarded with the opportunity to earn higher rates of return over the long term than they would from investments in short-term securities such as the G Fund. The overall risk is relatively low in comparison to certain other fixed income investments in the market because the F Fund includes only investment-grade securities. [/endquote]
Any pointers in the right direction would be helpful.
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I'll try and help out. The G-Fund is one of the best in class investment products that most people wish they had. Looks like it pays 1.5% right now (1.33% for Total Bond), and is the least risky product on the planet. You won't beat it (except maybe savings bonds, but that varies).
https://www.bogleheads.org/wiki/G_Fund
https://www.whitecoatinvestor.com/the-g-fund-a-free-lunch-military-physician-series/
https://forum.whitecoatinvestor.com/general-investing/6766-talk-to-me-about-the-tsp-g-fund
The one thing is it dampens but doesn't counter stock market volatility, because it's price doesn't move. You could invest 75% in G Fund and 25% in EDV, and get a bond allocation with the same interest rate sensitivity (as measured by duration) as a total bond fund, but with a higher yield, and no credit risk at all. That would be a pretty great bond solution, if you were ok with having two slices, and with EDV being one of them (EDV is more volatile than most stock funds).
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I'll try and help out. The G-Fund is one of the best in class investment products that most people wish they had. Looks like it pays 1.5% right now (1.33% for Total Bond), and is the least risky product on the planet. You won't beat it (except maybe savings bonds, but that varies).
https://www.bogleheads.org/wiki/G_Fund
https://www.whitecoatinvestor.com/the-g-fund-a-free-lunch-military-physician-series/
https://forum.whitecoatinvestor.com/general-investing/6766-talk-to-me-about-the-tsp-g-fund
The one thing is it dampens but doesn't counter stock market volatility, because it's price doesn't move. You could invest 75% in G Fund and 25% in EDV, and get a bond allocation with the same interest rate sensitivity (as measured by duration) as a total bond fund, but with a higher yield, and no credit risk at all. That would be a pretty great bond solution, if you were ok with having two slices, and with EDV being one of them (EDV is more volatile than most stock funds).
Thank you. I don't know how I missed the WCI forum thread in my searches but it had some descriptions / language in there that was a bit easier for me to understand than some other threads.
This is a good starting point and there are a couple things in the article and forum that I can dig deeper in to. For example this pdf (https://www.finra.org/sites/default/files/InvestorDocument/p230297.pdf) explained it in the way I needed it about duration, yields, etc.
I will look and see how EDV fits into the overall mix.