Loan balance and G Fund

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Q. I am a 48-year-old GS-14/7 with about $240,000 in my Thrift Savings Plan (I have a little more in a prior 401(k), and my wife makes more than I do but does not have a 401(k) plan…I am willing to take reasonable risks).

I have contributed the maximum at 43 percent C, 22 percent S, 25 percent I and 10 percent F for several years and rebalanced each year. Indeed, I stubbornly left it like that during the crash but have recovered nicely.

I recently borrowed $30,000 (yes, I know, that is not the best course), at the G rate of 1.5 percent. It seems to me that that is akin to putting more than 10 percent of my savings in the very safe G Fund.  So, while I left my existing F Fund balance alone, this “new” G money (interest on my loan repayments) plus the “bond bubble” threat convinced me to stop putting new money into either bond fund. I now contribute 48 percent C, 25 percent S and 27 percent I. (Yes, I tweaked the ratio a little due to lackluster I Fund performance and good S Fund performance).

Is it correct/smart to treat the interest I am paying myself as a sort of surrogate G Fund investment? Secondarily, are these ratios out of whack for a (moderately) aggressive portfolio?

A. Your loan balance and the G Fund differ in a big way: The G Fund guarantees the principal and the interest on your investment with them; you do not provide the same guarantee. Your asset allocation is “out of whack” in that it is risk-inefficient. For the same risk you are taking, you could achieve a higher expected rate of return by adding allocations to the remaining TSP funds.

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  1. Fed Up Fed on

    If you’re worried about a selloff in Treasury market you are wise to avoid the F Fund because it holds lots of U.S. government obligations. But the G Fund is your friend in that scenario. Dig into the G Fund data sheet and note the difference between the fund’s MATURITY and the fund’s DURATION. (If you don’t know why DURATION is so important, Google it.) You’ll see that the G Fund’s duration is very, very short. In a rising rate environment there is ZERO risk to your principal in the G Fund.

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