FREE NEWSLETTER
Here’s something I’m debating and hoping the collective brain trust of the HD community can push me in the right direction.
As a retired Fed, I have access to the Thrift Saving Plan G Fund. For those not familiar, it’s basically a high yield savings account on steroids. It pays rates comparable to medium/long-term Treasuries but has no default risk, duration risk, or interest rate risk. It only pays interest and can never fall in value. There is no comparable investment available in the private sector. The rate changes every month. The current rate is 4.5%. All pretty good! The Bogleheads often refer to it as the greatest free lunch in investing,
The downside “might” be that since the principal does not fluctuate, it is not subject to appreciation in a falling interest rate environment like one would experience in a traditional bond fund. Also, since it’s based on Treasuries, the rate is going to be relatively conservative.
My question is this. I’m considering using the G Fund as the only fixed income piece of my retirement portfolio and not worrying about a variety on bond funds, TIPS, laddering CDS/Treasuries etc. Since it’s so secure, I could probably even drop my total fixed income $$$.
There is an issue w the TSP that I don’t like which is how they handle inheritances when the primary beneficiary passes away but I can prob handle that by leaving instructions for my surviving spouse to roll over any balance to a private IRA upon my untimely demise.
Anyone have any strong thoughts either yay or nay on this? My initial thought are the upsides outweigh the downsides but maybe I’m missing something. Thanks for your input.
In my humble opinion, G Fund should be the pillar of your near-term Fixed-income Bucket. It’s a great tool to use in the early years of retirement to avoid Sequence of Returns Risk.
G Fund has unique advantages not found in ANY other fixed-income product:
.1. Guaranteed yields equivalent to 5-year Treasuries
.2. Daily liquidity of a Money Market Fund
.3. Solid track record of outpacing inflation
.4. G Fund has NEVER had a bad day (not sensitive to interest rate swings).
The only down side of using TSP’s G Fund is that TSP does not automatically take your withdrawals out of your G Fund balance (Like most brokerages draw your Cash/MMF balance first). TSP makes you take withdrawals ‘pro rata’, proportionally from all of your TSP portfolio- So you’ll have to re-balance your TSP allocation every time you withdraw if you want to take money exclusively from your G Fund balance.
Read Here for more.
Thanks Eddie. Fortunately I only use the TSP for the G Fund and keep my equities elsewhere so the “pro rata” distribution restriction won’t pose a problem for me.
This is what we have been doing for several years now. It was suggested to us by Allan Roth, the well known financial advisor. It was his opinion that the G Fund was the only thing necessary for our “safe” assets and that the equity portion of the portfolio will provide the growth.
Excellent! Good to know! Thank you.