G fund as inflation hedge?

[sojourner999]

Im trying to figure out more about how the G fund rate is calculated. I would think typically short term US Treasury securities would have to be sold a rate that makes them attractive to buyers, which means the rate would at least need to match or be greater than inflation, or no one would buy them since just sitting on their money would be preferable.

But what im wondering is if the G fund consists of US treasuries specifically sold for the TSP fund only, is there no incentive then for Treasury to make the rate equal to or higher than inflation, since TSP is going to buy them anyway?

In a nutshell im trying to determine if the G fund rate scales with inflation and if the G fund is a good hedge against inflation or not. Any insight would be appreciated. Thanks.

 

[Rube]

I'm as about as new to this TSP forum as you are and have almost no market insight. I don't believe, however, that you will do well against inflation with the G Fund. If you want government paper that has inflation protection, you can get I Bonds through payroll deductions, but that would not be pretax. I've heard there are other Treasury Inflation Protected Securities (TIPS) also.

 

[tsptalk]

Per the TSP...

"The G Fund is invested in short-term nonmarketable U.S. Treasury securities that are specially issued to the TSP. The G Fund interest rate equals the average of market rates of return on U.S. Treasury marketable securities outstanding with four or more years to maturity. There is no credit risk (risk of nonpayment of principal or interest) for the Treasury securities in the G Fund. In addition, market risk (the risk that investments may fluctuate in value as interest rates change) is eliminated by the Board’s current policy of investing the G Fund in short-term rather than longer-term securities."

 

[tsptalk]

Welcome sojourner999 and Rube!

Per the TSP...

"The G Fund is invested in short-term nonmarketable U.S. Treasury securities that are specially issued to the TSP. The G Fund interest rate equals the average of market rates of return on U.S. Treasury marketable securities outstanding with four or more years to maturity. There is no credit risk (risk of nonpayment of principal or interest) for the Treasury securities in the G Fund. In addition, market risk (the risk that investments may fluctuate in value as interest rates change) is eliminated by the Board’s current policy of investing the G Fund in short-term rather than longer-term securities. "

 

[Boghie]

We are in a period of deflation.

So, the 'G Fund' would be an inflation hedge. Yuk, yuk. Basically, anything stable that will not lose value is a stolid investment right now.

However, if you are looking past the near horizon there is a bit more to comprehend. When the trillions of debt and fiat money is flowing around and we have another debt party you will be looking at 1970's era inflation. The 'G Fund' will NOT be a good place to hold your assets in that atmosphere.

These are VERY trying times. The future is rather bleak. Our inability to take a bit of pain now will result in massive pain later.