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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.
As a retired CSRS fed I will say this – I rolled quite a bit of my TSP but kept some behind. If you leave a small amount (250 bucks I believe) in the fund you can return and move $ back in at a later date if you desire. Once you zero out the account it’s closed for good.
Yup. Good point to remember. Not sure if it’s still $250 but I’m sure it’s still a tiny amount. No matter which way I go, I won’t close the door completely on the G Fund.
As a just retired Fed, I can offer a few thoughts.
-The 4.5% rate of return you cited is the average rate of return. If you go to the actual year-to-date rate of return (https://www.tsp.gov/funds-individual/g-fund/?tab=performance-and-risks) you’ll see its 1.80%. Big difference!
This is how I am utilizing the G fund to minimize the sequence of return risk as well as the risk you identified. I kept 1.5 years of withdrawals in the G fund and have them send me my monthly amount. This way I get my monthly pension deposit and TSP deposit which addresses my monthly income needs. All my other TSP funds were rolled over to Fidelity. I have 5 years of needed income in a CD ladder that once it matures I annually roll over to the TSP to replenish the G fund. The rest of my funds are in equities. 6 years from now I will stop the monthly disbursement from the TSP (will have roughly 6 months of funds remaining there) and will start taking disbursements from Fidelity instead.
Since I am under 59.5, I can only withdrawal from the TSP without penalty, so this strategy was part necessity. Its worked out well since one must withdrawal from the TSP funds equally. Having everything in G with TSP and fidelity with everything else makes the TSP restrictions bearable.
Valid points. I’m probably 10+ years older than you so that might skew my perspective a bit towards more conservative. Also, the 4.5% is just the current July rate and I recognize can and will fluctuate m-t-m. As you note, I realize the 10 year average is much lower as it and every other bond yield was impacted by the overall low rates that have been pretty much across the board over the last decade. Like you, I have much of my portfolio in equities. I’m just not sure there’s another fixed income product that provides a better risk adjusted return than the G Fund. I think the G Fund yield also rose w CD rates and similar products during the same time frame. Thanks for the input. Gives me another option to consider.
Back when I was working and contributing I moved all into G and my account in number of shares had reached critical mass in that my biweekly contribution was less than the earnings accrual to my account.
As a former FED retired, I do still have a G fund holding. A while back I researched the history of share price of G and although currently there is daily share price appreciation back in the early to mid 90s there are days occurring where there was no change to the share price. I think this may have been when treasury rates were falling, but I could be wrong?
Hmm. I don’t know. Maybe when rates are super low, there isn’t enough interest to move the dial on a daily basis?
I would add some inflation protection with TIPS and/or I Bonds.
Thanks, Randy. I guess my thinking is my FERS pension and two social security benefits provide adequate inflation protection for care expenses but you’re right that the G Fund can be vulnerable there.
Correction – “core” expenses not “care”.
Mark – based on what you outlined, I’d definitely consider the G Fund for a bond position. As always, it depends on one’s own personal situation and needs. As a retired financial services industry professional, I use the TIAA Traditional Fixed Annuity as the bond position in my total asset allocation strategy (similar to the comment from Jo Bo). I try to keep my investments simple, as many on HD do as well.
Thanks. We’re in sync on the simplicity goal.
In December 2022 Dr. Jim Dalhe, a former military Doc and founder of the White Coat Investor (WCI), penned a great column about the G Fund in the TSP in the WCI where he wrote –
“Now, I admit it’s hard to get excited about an investment like this. It’s definitely not exciting. Nobody goes to cocktail parties and brags about owning shares of the G Fund. But it performs well when nothing else does. And now is that time. If you’re a G Fund owner, enjoy it!”
Choosing the G Fund reminds me of the reasoning in my decision to own I Bonds and TIPS to maturity that I see as a good ballast in the fixed asset portion of my asset allocation. The G Fund may be a even better option.
The Thrift Savings Plan (TSP) was officially created by Congress on June 6, 1986 thus the fund did not exist during the early 1970’s when I was on active duty. Like Michael’s below comment, I wish the option to purchase the G fund was available to me now.
Dalhe posts some good stuff. Thanks for the link to his piece.
I don’t see any downsides, Mark. I do something similar with fixed income, as virtually all of my 403(b) is invested in TIAA Traditional. Returns mirror 10 y Treasurys and principle also seems secure. No worries and no regrets.
Thanks for the affirmation.
I’d certainly consider it. I wish I still had it!
I’ll count that as a “yay”.
Thanks, Michael.