Post by Admin/YBB on Apr 22, 2024 13:01:53 GMT -6
TIAA Traditional Modelling in Portfolios
One approach is to model TIAA Traditional (SV) as a combination of fixed-rate annuity & T-Bills. The idea is to create a mix of annuity & T-Bill that captures the appropriate minimum guaranteed rate plus a variable rate (T-Bills are used for convenience because T-Bill TRs are built into MFO Premium as “TBILL”).
GENERAL. Model Traditional approximately with w% in fixed i% annuity, (1 - w)% in T-Bills. The overall rate is 0.01*w*i% + (1 - w )% T-Bill rate. For Traditional RA or SRA, the guaranteed rate is 3%; for RC or RCP, 1-3%. Then,
0.01*w*i = 3 for RA or SRA,
or,
i = 300/w for RA or SRA.
Likewise,
i = 100/w to 300/w for RC or RCP.
Example 1 – Traditional RA. 50% in fixed 6% annuity & 50% in T-Bills. The overall rate is 3% + 50% T-Bill rate. This approximation may be used for Traditional RA.
Example 2 – Traditional SRA. 75% in fixed 4% annuity & 25% in T-Bills. The overall rate is 3% + 25% T-Bill rate. This approximation may be used for Traditional SRA.
Example3 – Traditional RC. 50% in fixed 2% annuity & 50% in T-Bill. The overall rate is 1% + 50% T-Bill rate. This approximation may be used for Traditional RC when its guaranteed rate is at the low end of 1-3%.
Example 4 – Traditional Within Portfolios. Using MFO Premium for CLASSICAL portfolio of 50% CREF Stock & 50% Traditional SRA as “QCSTIX [50] RATE0400 [37.5] TBILL [12.5]”, for the years ending on 03/2024,
1-yr APR 14.0%, SD 7.0%, yield 1.5%; reference VFINX/SP500 SD 13.6
3-yr APR 5.6%, SD 8.5%, yield 1.5%; reference VFINX/SP500 SD 17.6
5-yr APR 7.8%, SD 9.2%, yield 1.5%; reference VFINX/SP500 SD 18.4
10-yr APR 6.6%, SD 7.6%, yield 1.5%; reference VFINX/SP500 SD 15.2
MFO Premium sets SD to 0 for Annuity and T-Bills, so all of the portfolio SD is from CREF Stock. Also, as CREF Stock has no yield, all of the portfolio yield is from modelled Traditional SRA (& unchanged). Unfortunately, MFO Premium cannot plot portfolios, but only portfolio components.
i.ibb.co/pzbqmcn/CREF-Stock-TIAA-Traditional-042224.png
One approach is to model TIAA Traditional (SV) as a combination of fixed-rate annuity & T-Bills. The idea is to create a mix of annuity & T-Bill that captures the appropriate minimum guaranteed rate plus a variable rate (T-Bills are used for convenience because T-Bill TRs are built into MFO Premium as “TBILL”).
GENERAL. Model Traditional approximately with w% in fixed i% annuity, (1 - w)% in T-Bills. The overall rate is 0.01*w*i% + (1 - w )% T-Bill rate. For Traditional RA or SRA, the guaranteed rate is 3%; for RC or RCP, 1-3%. Then,
0.01*w*i = 3 for RA or SRA,
or,
i = 300/w for RA or SRA.
Likewise,
i = 100/w to 300/w for RC or RCP.
Example 1 – Traditional RA. 50% in fixed 6% annuity & 50% in T-Bills. The overall rate is 3% + 50% T-Bill rate. This approximation may be used for Traditional RA.
Example 2 – Traditional SRA. 75% in fixed 4% annuity & 25% in T-Bills. The overall rate is 3% + 25% T-Bill rate. This approximation may be used for Traditional SRA.
Example3 – Traditional RC. 50% in fixed 2% annuity & 50% in T-Bill. The overall rate is 1% + 50% T-Bill rate. This approximation may be used for Traditional RC when its guaranteed rate is at the low end of 1-3%.
Example 4 – Traditional Within Portfolios. Using MFO Premium for CLASSICAL portfolio of 50% CREF Stock & 50% Traditional SRA as “QCSTIX [50] RATE0400 [37.5] TBILL [12.5]”, for the years ending on 03/2024,
1-yr APR 14.0%, SD 7.0%, yield 1.5%; reference VFINX/SP500 SD 13.6
3-yr APR 5.6%, SD 8.5%, yield 1.5%; reference VFINX/SP500 SD 17.6
5-yr APR 7.8%, SD 9.2%, yield 1.5%; reference VFINX/SP500 SD 18.4
10-yr APR 6.6%, SD 7.6%, yield 1.5%; reference VFINX/SP500 SD 15.2
MFO Premium sets SD to 0 for Annuity and T-Bills, so all of the portfolio SD is from CREF Stock. Also, as CREF Stock has no yield, all of the portfolio yield is from modelled Traditional SRA (& unchanged). Unfortunately, MFO Premium cannot plot portfolios, but only portfolio components.
i.ibb.co/pzbqmcn/CREF-Stock-TIAA-Traditional-042224.png