Thank you for this helpful analysis. One quibble: This chart makes the TIPS fund look like the clear winner, but when I drew a similar conclusion from a similar comparison in a different thread a few months back, I was politely informed that my conclusion was flawed because my comparison involved a period of falling interest rates, during which the G Fund (with zero interest rate sensitivity) would necessarily underperform conventional bond funds. Personally, I’m inclined to favor a non-rolling TIPS ladder over the G Fund, and to prefer either over a TIPS fund. That being said, I’m very much still learning.You need to be careful looking at binary win-loss scores year by year when working with returns that compound over time.For those with TSP access, do you see the G Fund in any way serving the role of TIPS over the LONG haul?
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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.
And since the G fund is a fund, the best comparison is to a TIPS *fund*, not to cost-free inflation indexes. Which unfortunately limits us to series beginning the end of 2000; but which also captures any positive real return that TIPS might provide.
Here is the 23 year record to the end of 2023, VAIPX versus G fund.
I'd take the TIPS fund, annualized return of 4.41% vs. 3.11%.
In defense of the G fund, as you can see from the chart, standard deviation of only 1.29%, vs. 6.64% for the TIPS fund.
I guess it depends on how much wealth you are willing to sacrifice in order never to have a drawdown.
Statistics: Posted by jaMichael — Sat Jun 01, 2024 3:15 am — Replies 42 — Views 3871