30 yrs to go, buy and hold new guy

[get2will]

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I just got on board TSP. Somewhere on this site it says "Diversification is for investors who don't want to watch their accounts." Thats me! I have 30-35 years of dollar cost averaging until retirment. I'm investingagressively in C, S, & I.

Looking at all these postings, I've noticed two trends.

One is allocatealmost evenly between equities: 33%C, 33%S, 33%I (I have 35, 35, & 30)

or

Split them (give and take) 60%C, 25%S, and 15%I

What are their relative advantages/disadvantages, or are both crazy?

 

[Rolo]

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Well, you have large caps, small caps, and international.

If you downplay international, you are ruling out MOST of your world-wide investment opportunities.

What you examine is each fund's past performance over a 30-year period and it's volatility. Use those to determine how much risk/reward suits you.

Being the black-and-white thinker that I am, at a glance, it is difficult to not want to just put everything in the biggest long-term gainer of all, begging the question: Which one will be worth the most in 30 years?

 

[rokid]

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get2will,

Welcome. Now there aretwo of us buy-and-holders on the board!

Historically, the S & I funds are more volatile than the C Fund, i.e. more risky. However, they have also delivered higher returns, i.e. more risk =s more return (hopefully).

Unfortunately, the S Fund has a high correlation with the C Fund. Therefore, it doesn't provide very good diversification relative to C. On the other hand, the I fund has a relatively low correlation with both the C & the S. Therefore, it provides nice diversification for the other two.

Since the C & S funds represent the entire domestic stock market, many people, set the C & S percentages based on their relative market capitalization, i.e. approximately, 75% C and 25% S (you might want to check these percentages).However, if you want to turn up the risk (and the potential return), you can over weight S (but not eliminate C).

Although foreign stocks represent about 50% of the world market capitalization, most experts wouldn't recommend a 50% allocation. Most recommend 25-30% foreign.

Therefore, a standard domestic market capitalization strategy, with a relatively high dose of foreign stocks would give you:

53% C; 17% S; and 30% S.

Incidentally, as a long term buy-and-holder, you may want to consider some bonds. Theynon-correlate with domestic stocks, i.e. provide good diversification, and reduce portfolio volatility.

 

[Mike]

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Three.

 

[tsptalk]

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Et tu, Mike?

 

[Rolo]

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tsptalk wrote:

Et tu, Mike?

hahahaha

Don't forget Azanon! (Az...you still around?)

 

[Mike]

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Tom and others, I simply cannot do a good job of being "active" in the trading realm at this time. My responsibilities at work have increased, and my hours continue to include substantial amounts of overtime. I simply don't have the time or energy to actively try to follow and time the market.

Hence, I'm on the 50 C / 30 S / 20 I automatic allocation. I'll tweak this periodically, depending on general trends.

 

[Guest]

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Mike wrote:

Three.

Hey

----

I think I want to follow you. Can you show me the way?

Rolo informed me that my pics weren't coming through so I re-did them. Please anyone let me know if these aren't coming through. Thanks W_W

 

[Mike]

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Exactly where would you like to follow me? :l

 

[shak23]

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Looks like I'm a Buy & Holder too... Currently 40C / 40S / 20 I. 30yrs to retirement, unless the returns are riduculous and I can buy my private island!

Problem is... I feel like a day trader. I'm always reading everybody's comments, philosophies, predictions, and allocation changes. I'm updating my Excel spreadsheet almost daily... and I get worked up over daily movements up & down in the markets. Add to that, that I'm not business or market savvy; and I'm trying to learn from listnening & reading & observing.

All of this, and I'm new to Fed/TSP- started in Nov 2004!!!

Maybe I need to learn some relaxation techniques... or just stop looking at the markets and re-eval my distribution percentage once or twice a year!

Any suggestions? A scotch nightly does wonders.

By the way, how do I upload a personal image to "identify myself"?

 

[Pete1]

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Buy and holder number X

Personally, splitting equally between the 3 funds is a perfectly reasonable strategy over a 30 year time horizon (contribution allocations also equally split equally between the 3 funds). Rebalance annually to 1/3rd in each and forget about it.

However (I always have to throw in a fixed income argument), I would highly recommend a 75/25 allocation in your case (75 stocks split equally between the 3 funds, and 25% fixed incomeG/F, I prefer G). Why? Historically,one third of therisk as measured by standard deviation is eliminated while sacrificing 1/7th of the return of 100% stocks (75/25 historically nets 92% of the return of an all equity portfolio). Historically, maximum one year loss drops from around 50% to around 30%. Recommend that you read William Bernstein's "The intelligent Asset Allocator" and "The Four Pillars of Investing" both must reads for buy and holders. Also, Larry Swedroe's 2005 edition of "The Only Investment Guide You Will Ever Need." Swedroe's book is particularly germane to TSPers because he uses many risk/return examples of portfolios split equallybetween the 3 stock asset classesavailable to us. He uses a 60/40 allocation to demonstrate.

 

[Dave M]

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<<I'm new to Fed/TSP- started in Nov 2004>>

Don't you have to wait six months before you can contribute to the TSP? Or maybe you are military and things are different over there?

I definitely agree with the above about not comitting your entire portfolio to the stock funds. I bounce between40% and 60%. Last year with 40% in the C and S funds (60G), I about tripled my return over what it would've beenwith 100G. This year I was shooting for a 60% investment but recent events -- the terrible 1st quarter just ended -- have caused me to retreat for now.

What matters most is that you get your kitty started by maximizing your contributions. Take a few years, get the balance up there while holding risk to the minimum, then look for the right opportunity. Easily said, hard to do!

Dave

 

[Mike]

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The worst thing a young worker can do is play it too conservatively. Losing 20% of your nest egg three years into federal service is not the same as losing that much of it 25 or 30 years in. When you're young, it is essential to be aggressive.

 

[Pete1]

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Mike, agreed - putting away as much as you can early is more important than returnsto investors just starting out. A 50% loss from a $50K account with dollar cost averaging is not nearly so painful as a 50% loss from a $1M account where contributions cannot quickly offsetlosses.

 

[Spaf]

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Buy and Hold

Attached is a decade chart of the DJIA.

Prior to 2000 a buy and hold strategy had considerable merit. The market was rather steady in a upward trending movement.....

However, after 2000 the market changed. It has becomemore like a roller-coaster. Simple returns (excluding dividends) can vary depending on when investments were made and what the current or future value may be.

One could buy high and sell low on retirement. Or, conversely buy low and sell high. It has become dependent on the time frame, the time frameof when one bought and when one sold.

Thus we now have the reality of the position investor. To enter and exit positions in the market based on good and bad trends. Developing strategies for when to buy and sell stocks. In reality, how not to lose $.

Rgds, and be careful! Spaf

 

[Pete1]

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Spaf, respectfully disagree. Bear markets happen. 73-74 and the Great Depression are previous examples. 2000-2002 was not a new thing. Also, using the DJIA as a benchmark for thoseholding a diversified mix of large, small, value, international, REITS, and fixed income - say a 60/40 mix of equity to fixed income, just does not work. For those holding theDJIA and only the DJIA, your chart makes more sense.

 

[rokid]

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Spaf wrote:

Thus we now have the reality of the position investor. To enter and exit positions in the market based on good and bad trends. Developing strategies for when to buy and sell stocks.

Anyone who can time the market will make a lot of money. However, research indicates that the overwhelming majority of people, including professionals, can't do it.They miss-time the market and lose money. In other words, they buy high and sell low.

However, I'll keep monitoring the board to see if anyone proves the research wrong and beats a "buy and hold with rebalancing strategy"on aconsistent basis.

I also agree with Pete. 2000-2004 is just a market cycle - nothing new. The 5 year period 1973-1977 had a greater variability of annual returns, i.e. more roller coastering.In fact, the 2000-2004 period is only 3% (20% vs. 17%) more volatile than the entire period 1970-2004.

 

[Dave M]

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There is no 1 answer, of course. That's why we're all here!

The risk/reward equation is illuminating. If the market goes up 10% on the year and you are 40% in the G-fund which pays 5%, you net (.4x5 + .6x10) = 8%. If the market goes down 10%, you net (.4x5 - .6x10) = -4%. You get 80%of the potential gain but avoid60% of the potential loss.

If 60G then it works out to (.6x5 + .4x10) = 7%; or (.6x5 - .4x10) = -1%. You get 70% of the gain and avoid 90% of the loss.

60G is very attractive late in one's TSP-career, as am I.

Dave

 

[Spaf]

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Dave M wrote:

60G is very attractive late in one's TSP-career, as am I.

Dave

Looks good to me! :^ Rgds Spaf

 

[virgosvirgo]

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I thought I'd toss my own hat in the ring and out myself. /mb/images/emoticons/big_grin.gif I'm 32 and have been with the TSP for only 4 years, so obviously I want to be pretty aggressive. Obviously the gains in the past few days have been quite heartening! I'm currently putting in 5% to get my full agency match, and putting in another 5% into a Roth IRA. I'm currently in for 50C, 30S, 20I.I've been buying and holding so far and can't really complain about that. Human nature being what it is though, I wonder sometimes if either a different buy-and-hold allocation or more of a short-term strategy would be appropriate for my TSP account.I'm angling for early retirement, of course! I'll be eligible to retire at 58, so that gives me a good 26 years in TSP if all goes well. I look forward to reading all the gems of insight from you!