The G fund has about the same yield as intermediate-term Treasuries, and thus will have the same amount of dividend income. Thus, over any time period in which interest rates rise, intermediate-term Treasuries will underperform by the amount of the price change resulting from the interest-rate rise; over any time period in which interest rates fall, intermediate-term Treasuries will outperform.What puzzles me is that intermediate-term Treasuries outperform the G-fund by a significant amount, although with greater volatility. The G-fund interest rate is the weighted average of Treasuries longer than 4 years. You would think this would be closer to intermediate-term Treasuries which have a average maturity of around 6 years. The portfolio compositions must be more different than one might think at first glance.
The advantage of the G fund is the elimination of the risk. A portfolio with stock and the G fund has less risk than a portfolio with stock and an equal amount of a Treasury fund, since the stock and Treasury fund both have risk and could lose value at the same time. You can take advantage of this by holding slightly less of the G fund then of a conventional bond fund to get the same risk reduction.
Statistics: Posted by grabiner — Thu May 16, 2024 10:17 pm — Replies 29 — Views 2230