Leave TSP g fund ? (2024)

Striker wrote: ↑Sat Aug 19, 2023 8:24 amFor the last couple of years I have kept about 1/3 of
my portfolio in the G fund. The G fund is paying about
4.175 %. I am thinking about those funds to an IRA and
Should be able to earn 5 to 5.5%. That would leave
funds in the TSP should I ever want to return. Would you go through the trouble to move $260k to capture
the higher rate ?

You don’t know how long the higher rates will last, but you could transfer back once the G Fund starts paying a higher rate.

Striker wrote: ↑Sat Aug 19, 2023 8:24 amWould you go through the trouble to move $260k to capture the higher rate ?

Probably not, unless there was another reason to leave, making this a one way trip.

One of the great values of the G Fund is that it does not lose value when interest rates go up. For the last few years of rising interest rates, bond values have gone down but the G fund value did not. People holding the G Fund didn't suffer as much as people holding bonds and no G Fund (or stable value fund). It has been a great investment.

There are other times when the G fund is sort of a lukewarm investment, not a great investment.

If a person is willing to move money back and forth to capture higher fixed income rates, I suppose the moving around is worth it. It is not worth it to me. I'd rather just have a good all around portfolio without needing to pick up some pennies here and there by chasing fixed income yields.

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Striker wrote: ↑Sat Aug 19, 2023 8:24 amFor the last couple of years I have kept about 1/3 of
my portfolio in the G fund. The G fund is paying about
4.175 %. I am thinking about those funds to an IRA and
Should be able to earn 5 to 5.5%. That would leave
funds in the TSP should I ever want to return. Would you go through the trouble to move $260k to capture
the higher rate ?

+1

100% yes. BTW, moving the money away from the TSP is not that big of a deal. In these times (G Fund 4.125 and VFMXX 5.26% or CDs/treasuries even higher), IMHO it’s worth it. But like you said, leave at least $200 in the G Fund because after this inverted yield curve subsides, you can go back.

retiredjg wrote: ↑Sat Aug 19, 2023 8:49 am

Striker wrote: ↑Sat Aug 19, 2023 8:24 amWould you go through the trouble to move $260k to capture the higher rate ?

Probably not, unless there was another reason to leave, making this a one way trip.

One of the great values of the G Fund is that it does not lose value when interest rates go up. For the last few years of rising interest rates, bond values have gone down but the G fund value did not. People holding the G Fund didn't suffer as much as people holding bonds and no G Fund (or stable value fund). It has been a great investment.

There are other times when the G fund is sort of a lukewarm investment, not a great investment.

If a person is willing to move money back and forth to capture higher fixed income rates, I suppose the moving around is worth it. It is not worth it to me. I'd rather just have a good all around portfolio without needing to pick up some pennies here and there by chasing fixed income yields.

I’ve done the math using the OPs figures. It’s not pennies we’re are talking about.

Striker wrote: ↑Sat Aug 19, 2023 8:24 amFor the last couple of years I have kept about 1/3 of
my portfolio in the G fund. The G fund is paying about
4.175 %. I am thinking about those funds to an IRA and
Should be able to earn 5 to 5.5%. That would leave
funds in the TSP should I ever want to return. Would you go through the trouble to move $260k to capture
the higher rate ?

I wouldn't but I am a pretty lazy investor and I don't want to make a habit of chasing performance even if the risk is low. I just want my G Fund to match inflation on average and it looks like it is on track to do that over the next few years.

SquawkIdent wrote: ↑Sat Aug 19, 2023 9:32 am

retiredjg wrote: ↑Sat Aug 19, 2023 8:49 am

Striker wrote: ↑Sat Aug 19, 2023 8:24 amWould you go through the trouble to move $260k to capture the higher rate ?

Probably not, unless there was another reason to leave, making this a one way trip.

One of the great values of the G Fund is that it does not lose value when interest rates go up. For the last few years of rising interest rates, bond values have gone down but the G fund value did not. People holding the G Fund didn't suffer as much as people holding bonds and no G Fund (or stable value fund). It has been a great investment.

There are other times when the G fund is sort of a lukewarm investment, not a great investment.

If a person is willing to move money back and forth to capture higher fixed income rates, I suppose the moving around is worth it. It is not worth it to me. I'd rather just have a good all around portfolio without needing to pick up some pennies here and there by chasing fixed income yields.

I’ve done the math using the OPs figures. It’s not pennies we’re are talking about.

See Also

G FundInvesting StrategiesHow Much Do I Need to Save to Retire?The outlook for bonds: TSP F Fund and G Fund

"Pennies" was meant to be metaphorical over a lifetime of saving and investing.

Yes, a few thousand extra if the increase lasts for a year. But a few thousand more will do little good unless the money is moved back before the next time interest rates go up....which could cause a loss in value of more than a few thousand. So maybe there will be a net benefit in moving the money. Maybe not.

My point is that chasing bond returns is not going to make a long term difference in the portfolio over a lifetime. The poster asked what people would do and I answered that I would probably not do it. Some others, maybe you, probably would do it.

When I had access to the G Fund, I liked having part of my bonds there (for the times where the G Fund shines) and part in the F Fund or total bond market (for the other times). I didn't switch back and forth and it worked out fine. I would like to have continued it, but finally gave up because of the awkward inheritance issues.

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Do you need to move money out of TSP to do this?

For example, if your IRA has 260K in stock funds you can do an asset location swap without any money transfer by placing two trades on the same day:
Trade 1 - In IRA, exchange 260K Stock fund(s) for MMF.
Trade 2 - In TSP, exchange 260K G Fund for stock fund(s)

retiredjg wrote: ↑Sat Aug 19, 2023 10:06 am
Yes, a few thousand extra if the increase lasts for a year. But a few thousand more will do little good unless the money is moved back before the next time interest rates go up....which could cause a loss in value of more than a few thousand. So maybe there will be a net benefit in moving the money. Maybe not.

If the money is put in a MMF, you don’t have to worry about the fund dropping if interest rates rise. So, the only real considerations are the effort involved in the round trip process and how long the inverted yield curve will last.

DSInvestor wrote: ↑Sat Aug 19, 2023 10:10 amDo you need to move money out of TSP to do this?

For example, if your IRA has 260K in stock funds you can do an asset location swap without any money transfer by placing two trades on the same day:
Trade 1 - In IRA, exchange 260K Stock fund(s) for MMF.
Trade 2 - In TSP, exchange 260K G Fund for stock fund(s)

Great suggestion. I think that's what I'd do if I cared to chase yield with those dollars. I don't though so I'm just leaving my G fund sitting right where it is. I'm actually thrilled to be earning more than I used to with the G fund.

rkhusky wrote: ↑Sat Aug 19, 2023 11:20 am

retiredjg wrote: ↑Sat Aug 19, 2023 10:06 am
Yes, a few thousand extra if the increase lasts for a year. But a few thousand more will do little good unless the money is moved back before the next time interest rates go up....which could cause a loss in value of more than a few thousand. So maybe there will be a net benefit in moving the money. Maybe not.

If the money is put in a MMF, you don’t have to worry about the fund dropping if interest rates rise. So, the only real considerations are the effort involved in the round trip process and how long the inverted yield curve will last.

Can't argue with that. But we don't know what the original poster intends to invest in...yet.

I think DSInvestor's idea of simultaneous exchanges might be worth the work and can be accomplished and reversed fairly quickly.

On the other hand, a 4.15% return with essentially no risk is a pretty good thing.

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retiredjg wrote: ↑Sat Aug 19, 2023 11:28 am

rkhusky wrote: ↑Sat Aug 19, 2023 11:20 am

retiredjg wrote: ↑Sat Aug 19, 2023 10:06 am
Yes, a few thousand extra if the increase lasts for a year. But a few thousand more will do little good unless the money is moved back before the next time interest rates go up....which could cause a loss in value of more than a few thousand. So maybe there will be a net benefit in moving the money. Maybe not.

If the money is put in a MMF, you don’t have to worry about the fund dropping if interest rates rise. So, the only real considerations are the effort involved in the round trip process and how long the inverted yield curve will last.

Can't argue with that. But we don't know what the original poster intends to invest in...yet.

I think DSInvestor's idea of simultaneous exchanges might be worth the work and can be accomplished and reversed fairly quickly.

On the other hand, a 4.15% return with essentially no risk is a pretty good thing.

Agree to disagree but 5.26% is better. Plus getting this money into a brokerage account allows you to invest in treasuries and CDs when those rates give you that higher return.

Another added bonus, you’ve got more money away from the TSP and their rules/restrictions. Heck, I was almost to the point of accepting less than the G Fund for that because of their ineptness.

Oh, I agree that 5.26% is better than 4.15%.

"Worth it" might be a different answer, especially if it does not last very long.

Again, DSInvestor's exchange idea is definitely worth consideration, even for a very lazy investor like me. Even I might be willing to do that.

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retiredjg wrote: ↑Sat Aug 19, 2023 12:06 pmOh, I agree that 5.26% is better than 4.15%.

"Worth it" might be a different answer, especially if it does not last very long.

Again, DSInvestor's exchange idea is definitely worth consideration, even for a very lazy investor like me. Even I might be willing to do that.

Agreed, his proposal is a no brainer IMHO. Portfolio totality should always be considered.

“Worth it” is a relative term I guess. It works until it doesn’t. When it doesn’t I move to that higher rate of return “sure thing”. Honestly, it’s not hard to move between the TSP and an IRA and only the person can decide if it’s worth it or not.

stan1 wrote: ↑Sat Aug 19, 2023 12:12 pmSo are we all ready to agree the G Fund behaves more like a cash equivalent investment not a bond under most market conditions, since we are comparing it to cash yields in a money market fund or CD? Not a bad cash equivalent, but not like a bond.

I’m not ready to agree with that. Especially with yields inverted. In “normal” times, the G Fund behaves like an intermediate bond like investment returns with no risk.

Right now a money market delivers better returns with the same risk (IMHO). It won’t always be like that and that can go on for many years. It all depends on what portion of the rate hike/lowering cycle we are in. Investors who want to make the effort to capture this (on both sides) are rewarded.

SquawkIdent wrote: ↑Sat Aug 19, 2023 12:19 pm

retiredjg wrote: ↑Sat Aug 19, 2023 12:06 pmOh, I agree that 5.26% is better than 4.15%.

"Worth it" might be a different answer, especially if it does not last very long.

Again, DSInvestor's exchange idea is definitely worth consideration, even for a very lazy investor like me. Even I might be willing to do that.

Agreed, his proposal is a no brainer IMHO. Portfolio totality should always be considered.

“Worth it” is a relative term I guess. It works until it doesn’t. When it doesn’t I move to that higher rate of return “sure thing”. Honestly, it’s not hard to move between the TSP and an IRA and only the person can decide if it’s worth it or not.

The one downside would be if you are doing the trade in a Roth IRA. Then you would be putting a bunch of stock in your tax deferred and a bunch of MMF in your Roth. The risk would be tax-wise if stocks jumped up 10% or 20% before you switched back.

Another way to get a similar benefit is to switch from the G fund to the F fund (the TSP's total bond market index).

The G and F fund have about the same yield, but the F fund will gain if rates fall and lose if rates rise. Usually, this is undesirable, as it adds to your portfolio risk. But with the inverted yield curve, bond traders expect rates to fall, and thus the F fund has a better short-term expected return than the G fund.

The reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

grabiner wrote: ↑Sat Aug 19, 2023 10:49 pmThe reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

Hmmm. I fail to see the distinction. Both the G fund and money market funds have fixed dollar value. Even though the G fund bonds are technically non-marketable, they are based on the interest rates of marketable bonds, just like the securities in a money market fund. The main difference is that the money market is short term rates and the G fund is intermediate to long term rates. It seems like switching to the F fund from either a money market or the G fund is a market timing bet either way.

billaster wrote: ↑Sun Aug 20, 2023 12:38 am

grabiner wrote: ↑Sat Aug 19, 2023 10:49 pmThe reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

Hmmm. I fail to see the distinction. Both the G fund and money market funds have fixed dollar value. Even though the G fund bonds are technically non-marketable, they are based on the interest rates of marketable bonds, just like the securities in a money market fund. The main difference is that the money market is short term rates and the G fund is intermediate to long term rates. It seems like switching to the F fund from either a money market or the G fund is a market timing bet either way.

Market timing is an investment strategy which depends on your ability to predict the market. Switching between a non-marketable fund and a marketable fund may be profitable even if you trust the market to be efficient.

Another example is the decision to pay down a loan (non-marketable) versus investing, It is likely a good deal to sell a bond yielding 3% to pay down a loan at 4%, even though the bond might earn more than 4% next year if rates fall.

grabiner wrote: ↑Sun Aug 20, 2023 12:45 am

billaster wrote: ↑Sun Aug 20, 2023 12:38 am

grabiner wrote: ↑Sat Aug 19, 2023 10:49 pmThe reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

Hmmm. I fail to see the distinction. Both the G fund and money market funds have fixed dollar value. Even though the G fund bonds are technically non-marketable, they are based on the interest rates of marketable bonds, just like the securities in a money market fund. The main difference is that the money market is short term rates and the G fund is intermediate to long term rates. It seems like switching to the F fund from either a money market or the G fund is a market timing bet either way.

Market timing is an investment strategy which depends on your ability to predict the market. Switching between a non-marketable fund and a marketable fund may be profitable even if you trust the market to be efficient.

Another example is the decision to pay down a loan (non-marketable) versus investing, It is likely a good deal to sell a bond yielding 3% to pay down a loan at 4%, even though the bond might earn more than 4% next year if rates fall.

What does being marketable have to do with it? In either case you are predicting that you will earn more by switching to the F fund than by holding the G fund or a MMF, and in either case you could be wrong and earn less instead.

If you sell all your G fund to buy the C fund because you believe a market downturn has bottomed, is that not market timing? That also switches between a non-marketable fund and a marketable fund.

nps wrote: ↑Sun Aug 20, 2023 7:10 am

grabiner wrote: ↑Sun Aug 20, 2023 12:45 am

billaster wrote: ↑Sun Aug 20, 2023 12:38 am

grabiner wrote: ↑Sat Aug 19, 2023 10:49 pmThe reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

Hmmm. I fail to see the distinction. Both the G fund and money market funds have fixed dollar value. Even though the G fund bonds are technically non-marketable, they are based on the interest rates of marketable bonds, just like the securities in a money market fund. The main difference is that the money market is short term rates and the G fund is intermediate to long term rates. It seems like switching to the F fund from either a money market or the G fund is a market timing bet either way.

Market timing is an investment strategy which depends on your ability to predict the market. Switching between a non-marketable fund and a marketable fund may be profitable even if you trust the market to be efficient.

Another example is the decision to pay down a loan (non-marketable) versus investing, It is likely a good deal to sell a bond yielding 3% to pay down a loan at 4%, even though the bond might earn more than 4% next year if rates fall.

What does being marketable have to do with it? In either case you are predicting that you will earn more by switching to the F fund than by holding the G fund or a MMF, and in either case you could be wrong and earn less instead.

If you sell all your G fund to buy the C fund because you believe a market downturn has bottomed, is that not market timing? That also switches between a non-marketable fund and a marketable fund.

Market timing depends on your ability to predict the market better than other investors. If one of the options is not marketable, your reason for choosing the marketable option may or may not be market timing.

if you sell a bond fund to buy a stock fund because you now expect the stock market to rise, while you held the bond fund because you expected the stock market to fall, that is market timing; it doesn't matter whether the bond fund is marketable. Conversely, if you sell a bond fund to buy a stock fund because your risk tolerance has increased, or because you currently have too little stock for your risk tolerance (rebalancing), this is not market timing: you may decide you should have 80% of your portfolio in stock independent of market conditions, and if it is now 70%, you buy more stock.

For the G versus F, you can separate the decision into two parts. You prefer a money-market fund to the G fund; this is not market timing because the money-market fund is guaranteed to outperform the G fund (in the short term, and you could switch back). Separately, you prefer an intermediate bond fund to a money-market fund regardless of market conditions, because the bond fund offers a better trade-off between risk and return for money you won't touch in several years.

TSP investors probably shouldn't use the mutual fund window to switch from the G fund to the money-market fund; even if this is a good strategy in general, the cost of using the mutual fund window may be more than the investment gains. (And investors who already use the window are presumably using it to hold some stock or bond fund substantially different from the TSP offerings, which may be more of a benefit.)

Striker wrote: ↑Sun Aug 20, 2023 9:31 amOP here. I’ve decided to go through with my original
plan. If Money market rates fall, I’ll reassess my options
then. It’s a little more work, but the small gain is worth it.

You didn't mention "money market fund" in your original post. I, and perhaps others, were assuming you were planning to invest in a short term bond index fund in the IRA. So you're basically going to cash and getting back into the market if rates move in the wrong direction.

grabiner wrote: ↑Sun Aug 20, 2023 9:15 amFor the G versus F, you can separate the decision into two parts. You prefer a money-market fund to the G fund; this is not market timing because the money-market fund is guaranteed to outperform the G fund (in the short term, and you could switch back). Separately, you prefer an intermediate bond fund to a money-market fund regardless of market conditions, because the bond fund offers a better trade-off between risk and return for money you won't touch in several years.

Neither of those are market timing. No argument there.

But your scenario was switching from G to F due to market conditions. Specifically, because the F fund has a better short-term expected return due to inverted yield curve. You stated that this would not be considered market timing since the G fund is not marketable. That's the part that does not make sense.

grabiner wrote: ↑Sat Aug 19, 2023 10:49 pmAnother way to get a similar benefit is to switch from the G fund to the F fund (the TSP's total bond market index).

The G and F fund have about the same yield, but the F fund will gain if rates fall and lose if rates rise. Usually, this is undesirable, as it adds to your portfolio risk. But with the inverted yield curve, bond traders expect rates to fall, and thus the F fund has a better short-term expected return than the G fund.

The reason this is not market timing is that the G fund is non-marketable. Switching between a money market and bond market fund to chase yields would be market timing.

But why is switching from the G fund to a bond fund not market timing while switching from a money market to a bond fund is market timing.

The G fund having non-marketable bonds just means that the principal share value is fixed because they are defined as non-marketable. But money market funds also have a fixed principal share value by virtue of their construction. Being non-marketable doesn't really distinguish the G fund from money market funds in practice. The only real difference is their maturity. They both have a fixed principal share value.

Share value is perhaps a more accurate term than principal value.

UpperNwGuy wrote: ↑Sun Aug 20, 2023 9:46 am

Striker wrote: ↑Sun Aug 20, 2023 9:31 amOP here. I’ve decided to go through with my original
plan. If Money market rates fall, I’ll reassess my options
then. It’s a little more work, but the small gain is worth it.

You didn't mention "money market fund" in your original post. I, and perhaps others, were assuming you were planning to invest in a short term bond index fund in the IRA. So you're basically going to cash and getting back into the market if rates move in the wrong direction.

The G fund is essentially cash as well, at least in the same way a money market is cash. I don't see any issue moving between TSP G and a higher yielding MMF. If you have to reverse the process there's no risk you'll miss out on capital gains.

After some contemplation and reading the previous messages, I decided on a temporary swap.

100% G Fund -> 40% C, 10% S, 50% I
VTWAX (total world) -> T-bills

This should pick up the free money from TSP while short term T-bills and money markets are yielding higher, while maintaining the same allocation. (I have a slight US tilt due to restricted choices in other accounts, hence the slight international tilt here.) Then if/when the G fund yields more, I can reverse the procedure.

Thanks to the posters above who mentioned that possibility. I had considered just rolling over the TSP (from a former employer) entirely, but this preserves maximum flexibility without any downside that I can see.