January 30, 2015 at 5:40 pm #15572
Couple quick questions:
1) After recently reading an article I was wondering what your thoughts are on the up-coming retirement of baby-boomers and the subsequent market effects that might have.
2) Do you think the current near-zero government interest rates will affect the potential for the F fund to offer positive returns in the “slow-down” phase of the economy?January 31, 2015 at 2:15 am #15583
With respect to the baby boomers, as long as the US’ GDP continues to grow, it really won’t factor into most of my investing decisions. On the individual stock side, however, it will push me towards health care and related companies.
One big problem with the near zero interest rates is that it takes away one of the Fed’s main tools if they can’t cut rates during the slowdown phase. That is one of the issues facing the European Central Bank. And yes, if rates are already low that will impact returns from the F Fund both in interest earned as well as gains in the value of bonds held. But it will probably still provide better returns than the G Fund in a declining market.
The TSP Allocation Guide www.TSPallocation.comFebruary 6, 2015 at 3:25 pm #15723
Thanks for taking the time to reply.
It’s encouraging to hear sentiments favoring US GDP growth over a single generations retirement. In all likelihood it does seem like the baby boomer retirement will be less uniform than it’s birthdate range (given the various ranges of financial success/early retirement vs. financial hardship/protracted retirement).
It’s also good to hear that the F fun could still outperform the G given the current low interest rates. Do you see any indication that interest rates would increase over the next year or two before quantitative easing kicks in, to allow room for a more pronounced interest rate decrease?February 8, 2015 at 2:22 pm #15767
I think the long term outlook for interest rates is up, which will be bad for the F Fund’s holdings. If I were guessing, I would say that a year from now interest rates will be higher than they are now, and that trend will continue for at least several years. But I have given up trying to predict when that will come to pass, however, as I started each of the last two years convinced that interest rates were likely to start trending up only to see them stay flat and even decline.
The TSP Allocation Guide www.TSPallocation.comFebruary 25, 2015 at 4:15 pm #16083
When interest rates do rise, what do you think the possibility is of a mass exodus from bond mutual funds/etfs? In addition to my TSP, I keep some medium to long term savings invested in broad index stock/bond funds in a roth ira. I understand the mechanics of declining value in bond funds during a rising interest rate environment but do you think that bond funds may also carry “redemption risk”? Or, as you wrote in your previous post, have the majority of investors anticipated rising interest rates for years and those who will exit bond funds already have? If a mass exodus from bond funds occurs, what do you think the timeframe would be for recovery? Has anything like this occurred during previous periods of rising rates?February 27, 2015 at 1:10 am #16088
It has been so long (1981) and markets were so different the last time we were in a bear market for bonds, I can’t even hazard a guess. A lot of money has already flowed out of the bond market and into equities over the last year or two. I don’t have a sense as to whether a similar or even larger rotation will continue as interest rates start to move up, or if the folks who are going to pull out have already largely done so.
The TSP Allocation Guide www.TSPallocation.com
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