For those with TSP access, do you see the G Fund in any way serving the role of TIPS over the LONG haul?
Dr. Grabiner kindly responded to a recent query;
AlwaysLearningMore wrote: ↑Tue May 07, 2024 4:33 pmIn terms of inflation and fixed income funds, to the best of my knowledge the federal government TSP is the largest retirement plan in the country, and it has no fund devoted specifically to inflation protection. While the G fund won't lose principal, from what I gather it is not explicitly in place for inflation protection. There are no TIPS in the TSP.
https://www.tsp.gov/funds-individual/
I've read where the G fund has done well versus inflation in the past, but I've seen some BH posts which went to great pains to explain the failure of the G fund to keep pace with inflation during the most recent bout of higher inflation.
grabiner wrote: ↑Tue May 07, 2024 9:32 pmThe G fund does not directly track inflation the way TIPS do…
However, the G fund gives better long-term inflation protection than a conventional nominal bond fund does. If expected inflation increases, bondholders will demand higher yields. When yields rise, bond prices fall, but the G fund price does not.
While TIPS may give even better protection, they have their own risk; long-term TIPS give long-term inflation protection but can lose value if TIPS yields rise. Thus I generally prefer the G fund even over TIPS.
Not sure if he is referring to individual TIPS bonds or TIPS funds (or both).
Our household happens to have TSP access from a job spouse had many years ago (account never closed, and balance has remained in G Fund); we could easily transfer in funds from an IRA. Would that serve as a TIPS stand in?
(We already have a healthy I Bonds allocation, started waaaay back when Mel L. did a HUGE public service and sounded the clarion call on the old M* VG DH board.)
From a CFP who appears to primarily work with TSP participants:
"There have been 36 years of annual G Fund returns so far (1987-2022). The G Fund has a pretty good record vs inflation. 30 Wins and 6 Loses. The vast majority of time (83%), the G Fund wins.
In some years, it was not even close. From 1991 through 2003, the G Fund more than doubled inflation for each those years, with the exception of 2000, when it only beat it by 90%.
The only losing years have been in more recent times (2012, 2016, 2018, 2019, 2020, 2021, and now 2022).
And frankly, it was still very close most of those years:
2012 1.74% Inflation vs 1.47% G Fund
2016 2.07% Inflation vs 1.82% G Fund
2019 2.29% Inflation vs 2.24% G Fund
2020 1.36% Inflation vs .97% G Fund
It wasn’t until the artificially low interest rates combined with the government’s refusal to see the inflation that everyone else clearly saw, that the G Fund really started to lose out.
2021 : 7.04% Inflation vs only 1.38% G Fund.
2022: 6.45% Inflation vs only 2.98% G Fund. Similar, but not that large of a win by inflation because interest rates are starting to be allowed to be normalized again. (It is very hard to defy the laws of the free market forever, no matter the size of the government or how advanced the technology. It was not possible in Roman times, and it isn’t possible today)."
https://www.barfieldfinancial.com/new-b ... -inflation
Dr. Grabiner's post got me thinking that this might be a very simple way to help deal with inflation protection (especially for a surviving spouse. YES we are aware of the TSP beneficiary issues.)
We'd be looking at long-term inflation protection, over the years, not the response of the G Fund over a year or two. (Not looking to set up a TIPS ladder.)
Any thoughts or insights on this would be greatly appreciated.
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* | FIRE'd July 2023
