Aitrus' Account Talk

[Aitrus]

Exactly, a big increase in interest rates on the same rated bond (AAA, AA, etc.) in any given year would be like 2%. I think Italy (one of the PIGS) just sold a bunch of bonds at 7% and we know how bad they are. Hell we sell ours for like 2.5% and we're 14 trillion in debt, so 2% in any given year is a lot (unless Carter is in office).

Sorry, that was before my time, and I don't even remember Reagan. :toung: The first time I remember paying attention to who the President was and what he did was during the Gulf War, and then only because I had an uncle there.

If the F Fund average bond yield is 5-6%+ they will absorb the discount loss on a 1-2% interest rate increase (I don't know the exact math but threefold should cover it).

Also, when interest rates increase so does the cost of debt to corporations, which means they will slow expansion because it cost more to expand, or they will fund expansion internally meaning lower dividends. Either way stocks will show lower EPS (earning per share) or lower dividends both hurt stock price. Dropping stock prices will make Bonds more attractive, just old (lower interest bonds) won't be as attractive as new (high interest) bonds.

Bottom lining it, it's got to be one screwed up year for the F Fund to lose money, that is why it is my "Dark Side" or what many on this forum call the "lily pad" (I know, I know, Dear ILoveTDs the "lily pad" is the G Fund). However, if interest rates increase expect the F Fund to lose value initially, but it should be fine on a per annum basis.

Sounds like the F fund has been a great place to run to if things go south in the C/S/I funds for the last few years, but if the interest rates rise then the F fund will drop a bit, but then it's safe to go back to as a steady earner after that point, provided rates don't get lifted upwards time and again.

Seems like there's two camps on where the Lilly Pad is - F and G. And it sounds like both have their pros and cons.

 

[mayday]

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If at first you don't succeed, redefine success.
You can't outrun Death, but you can sure make the b&stard work for it.

Perfect Health=The slowest possiable way one can die.

 

[Aitrus]

Can't outrun Death...I also take it to mean to live life to the fullest up to the very last day. Don't sit around just waiting to die, dead for a decade or so just because you have nothing left to live for.

The line is from an episode of Andromeda, and it's a paraphrase of Dylan Thomas' poem "Do not go gentle into that good night." The two quotes in my sig form the core of how I live my life - Never giving up, never giving in, always bouncing back from failure or setback, living every moment to it's fullest. I don't have room for the other two quotes that I live my life by, but they're "Live your life as if whatever you do were returned to you threefold" and "So long as you harm none, including yourself, do what you will."

 

[Aitrus]

Ok, can somebody check my understanding of this thought?

I see a ton of people jumping to the F or G funds today, all before noon. That means that their money will work all day today, then come Monday they will be in F or G. So that means that if the numbers keep climbing on Monday they'll be out of it, correct? But that also means that if the numbers fall on Monday then they'll be ahead.

This is one of the bad things about being on the West Coast, I guess...I need to make all my before-noon decisions by 8am. I'm too late today, but I can make changes for Monday evening.

So, if I were to make an IFT right now (9:20 my time, 1:20 East Coast) to 100% F, my money in L2040 would work all day today and Monday, then the transfer would take place on Monday evening to F. If the trend keeps climbing Monday then I'm ahead even more. If it's not climbing, then I take a hit on today's gains and the transfer takes place Monday night.

Is this correct?

 

[Birchtree]

10-4

 

[Aitrus]

Thanks, Birch.

So then the question I need to answer for myself is, what's the upsides and downsides of a move like this? And is it a good move for me?

Upside: I get today's movement. By getting out now I would be betting that Monday is a good day as well.
Upside: If next week is a bad week, as the seasonality seems to predict, then I'm out of it and I keep today's and Monday's gains.
Downside: If Monday is bad, then I take a hit before getting out.
Downside: If next week is good then I miss out.

So the best thing to have done would have been to make my IFT before 8am my time, then check early on Monday morning to see if I wanted the IFT to ride or cancel, given Monday's early indicators for that day's trading. Correct?

 

[Birchtree]

There is no way to gauge intraday market swings - they can make a timer's life difficult.

 

[Aitrus]

Gotcha. You're saying I should look at this like The Gambler. "Know when to walk away, know when to run." Today's a good day to walk because of the gains from today. Monday will be Monday, regardless of what happens today, and no matter what I'm stuck with it.

 

[mayday]

Ok, can somebody check my understanding of this thought?

I see a ton of people jumping to the F or G funds today, all before noon. That means that their money will work all day today, then come Monday they will be in F or G. So that means that if the numbers keep climbing on Monday they'll be out of it, correct? But that also means that if the numbers fall on Monday then they'll be ahead.

This is one of the bad things about being on the West Coast, I guess...I need to make all my before-noon decisions by 8am. I'm too late today, but I can make changes for Monday evening.

So, if I were to make an IFT right now (9:20 my time, 1:20 East Coast) to 100% F, my money in L2040 would work all day today and Monday, then the transfer would take place on Monday evening to F. If the trend keeps climbing Monday then I'm ahead even more. If it's not climbing, then I take a hit on today's gains and the transfer takes place Monday night.

Is this correct?

They want to grab the 2% for this up day.

 

[Aitrus]

Just some friendly advice...unless you're out of town and/or unable to get to a computer to make a move on Monday, best to hold off today and wait till 1145 am EDT (845 PDT) Monday. Reason is a lot of big news (both good and bad) comes out of Europe on the weekends and who knows what happens Monday morning...an impromptu Fed announcement, terrorist attack etc...

Also another another downside issue...I have learned the hard way to not go in early in the month unless there is a very clear buy siginal. Otherwise what could happen in a very weak month (like August) is that after brief run-up today or early next week we correct down 3%-6% percent by mid month, then the run-up 4%-7% up to the next Fed announcement could provide not only a better gain late in the month...but if its a go for QE3 then that could keep you in the market into September, giving you a chance to make big profits in stocks early Sep, drop out before the always present brief correction, then gain another move back into equities before the month is out. All of my best 3% or higher months have nearly always come with 2 separate periods in stocks during the month...always good to carry a move into the new month and save an IFT for a bonus in and out short term gain.....as opposed to getting that short term gain too early and missing on bigger fish.

Its just part of the IFT game that we play.

Thanks for the advice FWM. My problem is that I have no idea what "very clear buy signal" or "very clear sell signal" looks like. Bull and bear flags, head and shoulder patterns, etc. I'm still learning this stuff. And while I'm learning I'm missing the signals.

It makes sense that if one isn't already in at the beginning of the month it's a smart idea to wait and see what pans out before going in. As it is, I'm already in for about 24% this month in L2040, the rest is in F. Right now, the 2040 money is my learning money, so mentally I keep telling myself that "I'm currently 100% in 2040" to keep my early mistakes small.

 

[Boghie]

This is one of the few times FWM and I concur. We usually are clanging on each other with hammers and axes - but all in fun.

A few comments:

• The IFT deadline is 1200 EST. That maps to 0900 PST - not 0800. If you trade prior to the deadline your transaction should (but is not guaranteed) take place COB that day at the COB price. So, regardless of your market timing finesse you will always be sitting on a transaction for more than four hours watching as the market moves. It can be a bit frustrating. If you trade after the deadline than the trade takes place COB the following trade day. That is why FMW is telling you that it is generally wiser to simply make the trade on the day you want the trade to take place. Who knows what will happen this weekend. Bernanke might just get all excited and jack the Fed rate by the 2% ILoveTDS was talking about - you never know:nuts:.
• You only get TWO IFTs in a month. They are the golden egg. It is nice to let a trade run a bit. There has to be a reason why you make an IFT, and who would have guessed the market move that occurred today. I would let it run, but have a limit on the loss - maybe 2% or 3%.
• Now, if it does come time to bail out of equities do you want to bail out 100%? All you have to do is look at last week through this week. The crappy market early last week got lots of folks crowding on the Lilly Pad where they were locked down because of the IFT trade limit. Had they just sat around and drank a beer or two - ok, the market was lousy enough to require a couple of six packs to get through - than they would have made bank and not locked in losses. Then again, some of the smarter folks around here had large gains they could protect. Always remember there are two sides of every trade!!!

To me I like to have a solid asset allocation that I can live with in a moderate downturn and enjoy in a moderate upturn. Then I will play on the margins. That way I do not gamble with the big chuck of my retirement savings. The ability to plan a reallocation to a safer balance helps with corrections while a riskier allocation helps with booms.

 

[Boghie]

Thanks for the advice FWM. My problem is that I have no idea what "very clear buy signal" or "very clear sell signal" looks like. Bull and bear flags, head and shoulder patterns, etc. I'm still learning this stuff. And while I'm learning I'm missing the signals.

It makes sense that if one isn't already in at the beginning of the month it's a smart idea to wait and see what pans out before going in. As it is, I'm already in for about 24% this month in L2040, the rest is in F. Right now, the 2040 money is my learning money, so mentally I keep telling myself that "I'm currently 100% in 2040" to keep my early mistakes small.

The L2040 should be considered your normal allocation - and to me the L Funds are actually a bit conservative.

Your move that resulted in 'F Fund' assets should be your momentum play. You are guessing that folks will run to safety. That is market timing. At your age your core holdings should be largely in equities, but you can enhance gains and reduce losses buy learning enough to time that 15% in and out of the 'F Fund'.

 

[Aitrus]

Thanks for the advice, Boghie. Forgive me, but you used a few terms that I'm not completely sure the meaning of. I know that some of these may sound like dumb questions to you.

This is one of the few times FWM and I concur. We usually are clanging on each other with hammers and axes - but all in fun.

A few comments:The IFT deadline is 1200 EST. That maps to 0900 PST - not 0800.

Whoops...I knew that time didn't feel right for some reason. Thanks for making me aware of that.:embarrest:

If you trade prior to the deadline your transaction should (but is not guaranteed) take place COB that day at the COB price. So, regardless of your market timing finesse you will always be sitting on a transaction for more than four hours watching as the market moves. It can be a bit frustrating. If you trade after the deadline than the trade takes place COB the following trade day. That is why FMW is telling you that it is generally wiser to simply make the trade on the day you want the trade to take place. Who knows what will happen this weekend. Bernanke might just get all excited and jack the Fed rate by the 2% ILoveTDS was talking about - you never know:nuts:.

You only get TWO IFTs in a month. They are the golden egg. It is nice to let a trade run a bit. There has to be a reason why you make an IFT, and who would have guessed the market move that occurred today. I would let it run, but have a limit on the loss - maybe 2% or 3%.

Meaning, a 2 or 3% loss on the gains made today, or overall 2-3% loss?

Now, if it does come time to bail out of equities do you want to bail out 100%?

And, by equities, I'm assuming you mean C, S and I funds?

All you have to do is look at last week through this week. The crappy market early last week got lots of folks crowding on the Lilly Pad where they were locked down because of the IFT trade limit. Had they just sat around and drank a beer or two - ok, the market was lousy enough to require a couple of six packs to get through - than they would have made bank and not locked in losses. Then again, some of the smarter folks around here had large gains they could protect. Always remember there are two sides of every trade!!!

Meaning, that while there is downturn, there is also upturn, which is also followed by downturn, etc. Patience is key, but so is quick action when required?

To me I like to have a solid asset allocation that I can live with in a moderate downturn and enjoy in a moderate upturn. Then I will play on the margins. That way I do not gamble with the big chuck of my retirement savings. The ability to plan a reallocation to a safer balance helps with corrections while a riskier allocation helps with booms.

Sounds like a good plan. Care to elaborate? It sounds as if you have a chunk in a fund that you're ok with if it dips, and will do well if it goes up. Then you use a small amount to move around different funds based on what the market's doing to hedge losses and increase profits. Do I understand you right?

The L2040 should be considered your normal allocation - and to me the L Funds are actually a bit conservative.

Really? I was considering that the risky section of my portfolio. To me, the riskiest thing would be 100% S, C or I, or diversified between them.

Your move that resulted in 'F Fund' assets should be your momentum play. You are guessing that folks will run to safety. That is market timing. At your age your core holdings should be largely in equities, but you can enhance gains and reduce losses buy learning enough to time that 15% in and out of the 'F Fund'.

Interesting. The learning goal when I came here was to have firmer, more reliable growth in F, while using a smaller amount in C, S and I to enhance that growth. It sounds as if you're advising that I keep most of my funds in 2040 because time is on my side, with 15% or so moved around to minimize and maximize losses and gains that the 2040 will go through instead of F. Momentum play...you mean the money that I move from place to place depending on what the market is doing?

 

[Boghie]

Aitrus,

My allocation models (for a grisly late 40's oldster - so you should move more to risk) are:

Aggressive: 2% G, 15% F, 48% C, 19% S, 16% I
Normal: 12% G, 22% F, 39% C, 15% S, 12% I
Conservative: 12% G, 27% F, 37% C, 13% S, 11% I​

I think a later post moved a bit more to risk, but...

The way I got to those three allocations was to spend some time in Ric Edelman's 'The Lies About Money'. I found a 'Normal allocation I could live with that gave me decent growth and decent protection. My Normal Allocation should return 5% with a risk of 8% (inflation adjusted). My Conservative Allocation should return 5% with a risk of 7% (inflation adjusted). My Aggressive Allocation should return 6% with a risk of 9% (inflation adjusted).

Right now, for all the risk talk I am spilling out on your thread, I am close to the 'Conservative Allocation'. Remember, however, that I am 15 years closer to retirement than you. Plus, I actually think the market will end up going nowhere till after October - so why be in a heavy risk environment. But, why guess and guess wrong.

Patience is the key. You will lose most of your annual gains in the market by being out of the market on boom days like today and last Thursday/Friday. I got 60% of the gain today when I am actually in a conservative holding. Allocating like this gives you time to watch and then pounce. That is were a quick move comes into play. Dithering loses money too - but watching booms without taking any part of them kills.

Imagine these scenarios.

• Sitting 40% in G/F and 60% C/S/I last Monday. The Market had been dumping and will continue to dump for the next three days. But then, for no reason, some Fed banker opens his yak and boom. Then boom again the last day of the next week. This scenario is easy for me to model because it happened to be mine. I will end up gaining about 2.5% over two weeks. A good year is 10%.
• Now, let us look at someone who ran 100% to the Lilly Pad early last week. They locked in their July gain (if they had one) but sat on the pad shivering in the dark (yuk, yuk - just making a point folks). They did not participate in the market at all. They made 0.1%. If they keep that up they will be chewing on a cheap grade of Alpo in their golden years.

Finally, there are others far better than I. Just find some folks in the AutoTracker who trade and allocate in a way that works for you. For me, I like the folks who have an allocation. Some swing between funds. Others play full risk or full safe mode. Just study them. But, more importantly study yourself. For example, I know I think I am smarter than I am. So, I have to slow down my trading - or I will lose gains. I also do not know what I am talking about. I leaned last year that the 'C Fund' returns better than the S&P500 - by over 2% because of dividend reinvestment. The S&P500 came in at 0% while I lost 2.5% last year. You can see the difference over the years of that 2% enhancement. It will set you up in caviar:.

 

[Boghie]

Yes,

C/S/I are far more risky in normal environments than the F Fund. This is not a normal environment. Interest rates really cannot get lower - but they have been dropping since Reagan - hence the chart returns you pointed to. I have heard that the 70's were lousy for bond - but chaps who kept some of the Carter I bonds to maturity made serious bank.

G - No documented risk, no visible return (yuk, yuk)
F - 3% Return, 5% deviation ( -2% through +8% with 3% inflation)
C - 7% Return, 16% deviation ( -9% through +23% with 3% inflation)
S - 8% Return, 20% deviation ( -12% through +28% with 3% inflation)
I - 8% Return, 18% deviation ( -10% through +26% with 3% inflation)

Deviation is Risk. The above is from Quicken.

 

[Aitrus]

Well Boghie, that's a ton of great advice. I'm going to be thinking long and hard, thank you. I don't like the idea of being 100% in or out, I'm more of a shades of grey kind of guy so your advice is ringing really loudly with me.

In the meantime, I've got a 10.24% PIP for the last year, up from 7.61% last month, so my allocation seems to be working for now. Because it's in 2040 it's diversified a bit along the lines you suggest, but more conservative than your current standing. Let me see if I can figure out what my allocation would be if I had my funds diversified according to how the 2040 is divvied up right now:

G - 3%
F - 78%
C - 10%
S - 4%
I - 5%

 

[Boghie]

Well Boghie, that's a ton of great advice. I'm going to be thinking long and hard, thank you. I don't like the idea of being 100% in or out, I'm more of a shades of grey kind of guy so your advice is ringing really loudly with me.

In the meantime, I've got a 10.24% PIP for the last year, up from 7.61% last month, so my allocation seems to be working for now. Because it's in 2040 it's diversified a bit along the lines you suggest, but more conservative than your current standing. Let me see if I can figure out what my allocation would be if I had my funds diversified according to how the 2040 is divvied up right now:

G - 3%
F - 78%
C - 10%
S - 4%
I - 5%

Aitrus,

The L2040 is diversified (allocated) as follows:
G - 13%
F - 9%
C - 39%
S - 17%
I - 22%
Expected Return: 6%
Expected Variation (Risk): 8%
Thus, one can normally expect a return of between: -2% through +14%

I think your 14% additional holdings change the balance to (playing with ratios of ratios is kinda imprecise):
G - 11%
F - 23%
C - 33%
S - 15%
I - 18%
Expected Return: 5%
Expected Variation (Risk): 7%
Thus, one can normally expect a return of between: -2% through +12%

In the end, your current allocation is very close to mine:toung:.

The www.tsp.gov site has a real nice page for describing the L fund allocations. Here it is...

Right now I'm streaming the weekly Ric Edelman show from Baltimore. Here is Ric Edelman's radio stations and links.

 

[Boghie]

Sorry,

I read an earlier post that had you with 14% in F and 86% in L2040. At least I think I did - you cannot imagine what happens to the brain after you turn 43.

Your allocation results in:
G - 3%
F - 78%
C - 10%
S - 4%
I - 5%
Expected Return: 3%
Expected Variation (Risk): 5%
Thus, one can normally expect a return of between: -2% through +8%

If you keep that allocation for any length of time you will be on the 'Alpo Meal Deal Retirement Plan'. Your risk is that you are not at risk. You are barely beating inflation with that allocation - your current holdings will take something like 24 years to double. Plus, you will get hit with a sledgehammer when interest rates go up. Bonds cannot adjust to interest rate increases - companies can charge more for their products.

This allocation implies that you know what you are doing and are implementing a full market timing methodology. You are planning a quick strike into equities with those 'F Fund' assets. If that ain't you than you need to reallocate. At your age - and with the current assets you probably have in TSP - your normal allocation should look like the L2040 or L2050. Your current allocation looks like someone who is already retired.

I would reverse it to 80% L2040 and 20% F. And, I would play with that 20% since it cannot really be considered your science diet retirement plan (the L Funds are invested in some form of 'Modern Portfolio Theory' allocation). If you do it this way you reduce risk (variance) by a point or two when that 20% is in G or F and increase that variance by a point or two by moving it into C or S or I (or a mix). That point or two can move you from steak to filet mignon - both are tasty and both are far tastier than the Alpo you will be grinding on from the can under your current allocation.

 

[Aitrus]

Edit: we posted at the same time. You answered my question.

 

[Aitrus]

Sorry,

I read an earlier post that had you with 14% in F and 86% in L2040. At least I think I did - you cannot imagine what happens to the brain after you turn 43.

Your allocation results in:
G - 3%
F - 78%
C - 10%
S - 4%
I - 5%
Expected Return: 3%
Expected Variation (Risk): 5%
Thus, one can normally expect a return of between: -2% through +8%

If you keep that allocation for any length of time you will be on the 'Alpo Meal Deal Retirement Plan'. Your risk is that you are not at risk. You are barely beating inflation with that allocation - your current holdings will take something like 24 years to double. Plus, you will get hit with a sledgehammer when interest rates go up. Bonds cannot adjust to interest rate increases - companies can charge more for their products.

This allocation implies that you know what you are doing and are implementing a full market timing methodology. You are planning a quick strike into equities with those 'F Fund' assets. If that ain't you than you need to reallocate. At your age - and with the current assets you probably have in TSP - your normal allocation should look like the L2040 or L2050. Your current allocation looks like someone who is already retired.

I would reverse it to 80% L2040 and 20% F. And, I would play with that 20% since it cannot really be considered your science diet retirement plan (the L Funds are invested in some form of 'Modern Portfolio Theory' allocation). If you do it this way you reduce risk (variance) by a point or two when that 20% is in G or F and increase that variance by a point or two by moving it into C or S or I (or a mix). That point or two can move you from steak to filet mignon - both are tasty and both are far tastier than the Alpo you will be grinding on from the can under your current allocation.

I guess my next course of action, then, would be to try and figure out when it's best to go to that 20/80 mix. The sentiment seems to suggest that going in right now might be premature because of the tendancy of August to underperform, but I should wait for an upswing so I don't take a big hit right away.