June 21, 2013
BlackRock, which serves as the investment manager for the F Fund (as well as the three stock funds), has placed ads in U.S. papers over the past month warning about possible future losses of bond funds in the future.
The most recent ad, appearing on page A15 of the June 18th 2013 Wall Street Journal, reads: “Once safe. Now risky. Rethink your bonds.”
It continues by declaring:
“The traditional bond funds you once considered safe investments may not be so safe anymore. Yields today are near record lows. Your income stream has slowed to a trickle. Many investments – like U.S. treasuries – aren’t even keeping pace with inflation. And if interest rates rise or inflation picks up, these once low-risk bonds could do something they’ve rarely done in 30 years – lose you money.*”
The asterisk sources that stat to Morningstar, which states that the “Barclays US Aggregate Bond Index lost money in only two of the last 30 calendar years.”
That index happens to be the same one on which the F Fund is based, as noted on the TSP site. So BlackRock is warning that the Barclays US bond index – and the F Fund – could start to experience losses in the coming years due to the inevitable increase in interest rates.
BlackRock then goes on to hock its own actively managed bond fund that takes an “all weather” approach, but that is unimportant for this forum.
The important thing for TSP investors is that even the manager of the F Fund is pointing to possible trouble ahead for investors in that fund as rates start to rise. This follows other warnings from Vanguard founder John Bogle and the Financial Industry Regulatory Authority.
The alternative is to invest in the G Fund. While I detailed strategies to diversify bond allocations between the F Fund and G Fund in TSP Investing Strategies, since last summer I’ve advocated investing the bond portion of one’s TSP investments solely in the G Fund until monetary policy normalizes. The yield on the G Fund should recover more readily as interest rates rise compared to the F Fund, as happened in 1994.