Boghies Account Talk

[Boghie]

Re: TSP Allocation

The market seems frothy. Don't worry about the -7% to -10% drawdowns, those happen frequently and happen fairly quickly. If you cannot accept a -10% year than you should not be in equities. That statement DOES NOT mean that if such a decline trends slowly and consistently that one has to camp in some allocation, it just means that you have to accept normal fluctuation. Personally, if I get a drawdown of about 7% from the high point I will allocate more conservatively. If I get a nice consistent up market I move to more risk. I am not going to try to guess.

Anyway, these are what we are trying to avoid:

Portfolio #1: G/F/C/S/I 10/30/27/23/10
Portfolio #2: G/F/C/S/I 30/30/17/13/10
Portfolio Vanguard 500: G/F/C/S/I 0/0/100/0/0



Right now I am in Portfolio #1 which seems to be a comfortable allocation for me right now. All I kinda need to retire at age 65 with a comfortable standard of living is a return of 5.5%. While I usually use Quicken to provide average return and risk, I will use Portfolio Visualizer - which has data from 1987 on. Obviously, that ignores some market data, but it does catch a lot of big and recent market moves as well as the normal blah. Here are the basic metrics:



What works for me is avoiding the worst and the worst of the worst. For example, I chunked 2008 with a -11% dump. That is actually a +26% advantage over market returns. Same, same for 2000 - 2003. Also, I am wary of all in/all out strategies. The market can move rapidly. Missing early returns (see April of this year) by being 100% in the G Fund means you lost out on a LOT of gains. True, if you predicted 'The Black Plague of 2020' you saved yourself losses in March, but the sleepers recovered in April anyway. All in/All out trading would have required being right twice during a period of turmoil. I rode it by moving to a conservative allocation (50% out of the market) during the downturn - thus alleviating some of the worst of the temporary dump, and then migrating back to a normal to aggressive allocation and the fear subsided. Never all in/all out. Works for me.

 

[Boghie]

Re: TSP Allocation

I decided to crunch some numbers for various types of retirement programs. For Social Security I am not using the returns promised by politicians, but instead the actual return on investment.

Since 1989 (average annualized returns):

• Social Security (G Fund): 4.76%
• F Fund: 6.38%
• C Fund: 12.46%
• Inflation: 3.54%
• Investing 12.5% of gross salary/year. Thus, initially $3,000 and increasing by inflation/year
• Retirement Age: 65
• Croaked at: 85

Using a simple, inflation adjusted (3.54%/year) initial salary of $24,000/year starting in 1989 at an age of 24. Your retirement package would likely be higher because of promotions and non-COLA pay raised, but this keeps it apples to apples. The 'G Fund' IS invested in Social Security bonds - thus it is a very good proxy of the actual value of those retirement holdings.

Gross Income/Holdings in today's dollars, at age 65

Social Security:

• Balance: $631,163
• Annual Income: $8,453
• Monthly Income: $704
• 2-Week Income: $325

F Fund:

• Balance: $893,930
• Annual Income: $13,715
• Monthly Income: $1,142
• 2-Week Income: $527

C Fund:

• Balance: $4,006,441
• Annual Income: $94,410
• Monthly Income: $7,867
• 2-Week Income: $3,631

A few things become clear.

• It's too bad we could not invest that 12.5% of gross income reasonably. Just camping it in C would have given you a very nice retirement. It would be less what is posted because you would move to more stable investments late in life, but...
• It appears that the politicians are promising F Fund returns while investing is such a way as to get G Fund returns.
• And, if the account has a G Fund balance than anything over that is a promise.

If I were someone counting on Social Security than I would be on the lookout for someone asking for 'shared sacrifice'.

That means that those future politicians think they get more votes by sacrificing you to buy more votes from others.

 

[Bullitt]

Re: TSP Allocation

I hope someday a program comes in where you can invest the social security, but that would be prime target for the inequality crowd so it's not happening soon.

Agree with those charts. A common misperception, "when you're young you should just be 50% C and 50% S". No consideration to risk, life goals or plans to get there either. Look at that drawdown in 100% C fund compared to 60/40. AGG returned 7% in 2020 which more than keeps up with inflation. Nobody talks about that except for the "fiat" crowd which has been crowing for years about this massive inflation push that will erode all wealth and bring back 10% interest rates. 60/40 portfolio goes another year despite being considered dead.

We're constantly told to take on maximum risk to get to the goal, whatever that is. For some reason on this MB the goal is just to have more (re: millionaire thread) which is no goal at all. If you have actually mapped out your goals and you can reach those goals with less risk, then the route with less risk only makes more sense.

 

[Boghie]

Question: Why is the S Fund booming

I guess the title says it all: Why is the S Fund (US Stock Market excluding S&P500) booming???

If we can understand the reason for the advance we can make decisions. The stupid snippets in the media are just day to day trolling. What is the reason for the long term growth of non-S&P500 US stocks?

:blink:

:suspicious:

 

[SteelSaving]

Re: Question: Why is the S Fund booming

I guess the title says it all: Why is the S Fund (US Stock Market excluding S&P500) booming???

If we can understand the reason for the advance we can make decisions. The stupid snippets in the media are just day to day trolling. What is the reason for the long term growth of non-S&P500 US stocks?

:blink:

:suspicious:

I asked the same thing, doesn't make sense to me.

 

[SRS19]

Re: Question: Why is the S Fund booming

I saw something on one of the Kendall Report's videos a while back. He brings it up every now in then. I think he brought it up last week during his 2+hour live webcast discussing what's ahead for 2021. Basically, the Russell has not kept up with the Nasdaq over the past few years and that recovery has been going on since June or so. I'm not sure if this is the whole story or not.

 

[Bullitt]

Re: Question: Why is the S Fund booming

Much of the future was pulled forward for tech stocks while everything else stood still. Small caps don't have such high concentration in tech sector or FANG stocks and instead ard weighted towards healthcare and financials.

Most of those popular tech stocks have been stuck in neutral or are down since September.

 

[Boghie]

Re: Question: Why is the S Fund booming

That is a super frowny face on the market today...

Scientifically speaking, it might be time to bail to a conservative allocation...

All the jibber jabber yokels were a-yokeling about the downturn being caused by FED yammering. But, the FED a-yammered and the market did not improve. Still have a half hour left - and late money is smart money. But, if the countenance continues to be frowny it might be because the market is reacting to the new normal. Will regulation and tax 'enhancements' move the economy forward?

 

[rangerray]

Re: Question: Why is the S Fund booming

I don't think we'll know the answer to that for some time to come, but it's not looking good this week.

 

[Bullitt]

Re: Question: Why is the S Fund booming

This is where a plan comes into play that includes a solid asset allocation in good times and bad.

What about all those who said, "I'll just ride this up as far as I can but when it starts to look bad I'll get out". I seriously can't do anything but shake my head at statements like that anymore.

It's like when people say, "I'll just buy when there is a dip." When "the dip" comes, they've likely changed their tune to, "I'm just going to see how this plays out."

And when they miss the upswing, "The market is too high right now."

 

[Whipsaw]

Re: Question: Why is the S Fund booming

Sitting on the sidelines waiting for a pull back, for any longer than a few weeks, it seems, If this is the extent of the pullback, more gains have been missed than buying the dip will make up for. TSP IFT limits make this timing game untenable.

 

[jonfresno]

Re: Question: Why is the S Fund booming

Hey man, stop reading my mind... :smile:

This is where a plan comes into play that includes a solid asset allocation in good times and bad.

What about all those who said, "I'll just ride this up as far as I can but when it starts to look bad I'll get out". I seriously can't do anything but shake my head at statements like that anymore.

It's like when people say, "I'll just buy when there is a dip." When "the dip" comes, they've likely changed their tune to, "I'm just going to see how this plays out."

And when they miss the upswing, "The market is too high right now."

 

[Boghie]

Re: Question: Why is the S Fund booming

A couple of messages in another thread got me thinking of investment risk.

Some folks, perhaps those who were not watching their retirement assets in 2001, 2003, and 2008, have a magic number they want to reach within a specific timeframe of their choosing. That is fine as long as you are realistic. You neither control the returns nor the time, but over longer durations the stats work in your favor. However, as the timeframe shrinks the risk of failure becomes exceedingly dangerous - so much so that one should not use the magic numbers one pulled from their @ss.

Let us look at me as an example. I can hammer me without being a whining snowflake, so here we go. As of 2020/12/31 I had $737K in my TSP retirement account. I am 57 this year. I am tired of the physical work required as a DBA/Programmer/Whatever so I want to retire on 2021/12/31. That is magic number 1. I also want a million bones in TSP when I retire. That is magic number 2. I think I can get it by investing in the 'S Fund'. Look at the returns of the 'S Fund'!!! Yowser, it made 32% last year!!! Now, be careful Boghie, one should look at long term returns before jumping in. Yowser, it made 28% two years ago!!! All I need is a return of 35% this year and I can retire with a cool One Million Dollars!!! And, the average annual return has been going up!!!

Calm down, Boghie... Don't use two years of data. Try to use a bit more. Say 48 years of data (PortfolioVisualizer.com). Here are those numbers (in %):

[table="width: 500, class: grid, align: left"]
[tr]
[td]Fund[/td]
[td]CAGR[/td]
[td]Risk[/td]
[td]Best CY[/td]
[td]Worst CY[/td]
[td]Max Dump[/td]
[/tr]
[tr]
[td]F[/td]
[td]5.87[/td]
[td]3.80[/td]
[td]18.80[/td]
[td]-2.66[/td]
[td]-5.66[/td]
[/tr]
[tr]
[td]C[/td]
[td]10.63[/td]
[td]15.14[/td]
[td]37.45[/td]
[td]-37.02[/td]
[td]-50.97[/td]
[/tr]
[tr]
[td]S[/td]
[td]10.60[/td]
[td]15.40[/td]
[td]35.79[/td]
[td]-37.04[/td]
[td]-50.89[/td]
[/tr]
[tr]
[td]I[/td]
[td]5.82[/td]
[td]17.42[/td]
[td]38.67[/td]
[td]-41.27[/td]
[td]-57.06[/td]
[/tr]
[tr]
[td]10/30/27/23/10[/td]
[td]8.60[/td]
[td]9.57[/td]
[td]25.24[/td]
[td]-20.24[/td]
[td]-32.05[/td]
[/tr]
[/table]

Now, how does my starting $737K look at 2021/12/31 for each of these asset allocations (Risk+ = CAGR+Risk, Risk-=CAGR-Risk):
[table="width: 500, class: grid, align: left"]
[tr]
[td]Fund[/td]
[td]CAGR[/td]
[td]Risk+[/td]
[td]Risk-[/td]
[td]Best CY[/td]
[td]Worst CY[/td]
[td]Max Dump[/td]
[/tr]
[tr]
[td]F[/td]
[td]780,262[/td]
[td]808,268[/td]
[td]752,256[/td]
[td]876,219[/td]17,
[td]717,396[/td]
[td]695,286[/td]
[/tr]
[tr]
[td]C[/td]
[td]815,343[/td]
[td]926,925[/td]
[td]703,761[/td]
[td]1,013,007[/td]
[td]464,163[/td]
[td]361,351[/td]
[/tr]
[tr]
[td]S[/td]
[td]815,122[/td]
[td]928,620[/td]
[td]701,624[/td]
[td]1,000,772[/td]
[td]464,015[/td]
[td]361,941[/td]
[/tr]
[tr]
[td]I[/td]
[td]779,893[/td]
[td]908,279[/td]
[td]651,508[/td]
[td]1,021,998[/td]
[td]432,840[/td]
[td]316,468[/td]
[/tr]
[tr]
[td]10/30/27/23/10[/td]
[td]800,382[/td]
[td]870,913[/td]
[td]729,851[/td]
[td]923,019[/td]
[td]587,831[/td]
[td]500,792[/td]
[/tr]
[/table]

Finally, what does that mean for my annual income in retirement assuming retiring at 58, croaking at 85, and averaging a 'F Fund' CAGR return in retirement:
[table="width: 500, class: grid, align: left"]
[tr]
[td]Fund[/td]
[td]CAGR[/td]
[td]Risk+[/td]
[td]Risk-[/td]
[td]Best CY[/td]
[td]Worst CY[/td]
[td]Max Dump[/td]
[/tr]
[tr]
[td]F[/td]
[td]40,377[/td]
[td]41,826[/td]
[td]38,927[/td]
[td]45,342[/td]17,
[td]37,123[/td]
[td]35,979[/td]
[/tr]
[tr]
[td]C[/td]
[td]42,192[/td]
[td]47,966[/td]
[td]36,418[/td]
[td]52,421[/td]
[td]24,019[/td]
[td]18,699[/td]
[/tr]
[tr]
[td]S[/td]
[td]42,181[/td]
[td]48,054[/td]
[td]36,307[/td]
[td]51,788[/td]
[td]24,011[/td]
[td]18,729[/td]
[/tr]
[tr]
[td]I[/td]
[td]40,358[/td]
[td]47,001[/td]
[td]33,714[/td]
[td]52,886[/td]
[td]22,398[/td]
[td]16,376[/td]
[/tr]
[tr]
[td]10/30/27/23/10[/td]
[td]41,418[/td]
[td]45,068[/td]
[td]37,768[/td]
[td]47,764[/td]
[td]30,419[/td]
[td]25,915[/td]
[/tr]
[/table]

Two thirds of the time your annual return will fall within the Risk+/Risk- numbers. The best CY return and the best CY dump happened exactly once over the past 48 years. Same with the Max Dump (max draw down). Personally, the best numbers to work with are Risk+/Risk- centered on CAGR. That will give you the likely range of assets for normal years. However, one must ALWAYS look at the worst case scenario.

If one gets another 2007 - 2009 and one either 'buy and holds' or panic sells then you are looking at worst case scenarios. One should ALWAYS take that into account. For example, in 2008 I was actually running a +6% or +7% gain. I took early year gains and got out when the market seemed frothy and the summer doldrums were on the way. But, I got back in after the market stabilized and things started to ease. I lost 16% of my assets in ONE afternoon and into the next day's COB IFT. Yowser. And, I did well in 2008 losing about 11%. Also, how many actually got back into the market in March/April of 2009. If that is not you than do not hope for the best. Play the odds, don't gamble with the car keys and the house.

Look at those 'Worst CY' and 'Max Dump' numbers. Can you work with THOSE numbers in your chosen allocation?

 

[Bullitt]

Re: Question: Why is the S Fund booming

Investors continually buy high and sell low which is why institutional managers still use a 60/40 portfolio.

Retirees and those almost retired shouldn’t care what their highest level of risk tolerance is because they shouldn’t be investing anywhere near it. There is no economic reason for a person to take more investment risk than necessary once they’ve accumulated enough money for retirement. The focus should be on the minimum amount of risk needed to achieve an income required in retirement.

https://www.etf.com/sections/index-investor-corner/ferri-wisdom-6040-portfolios-timeless?nopaging=1

Claims that people will be less emotional when they have a longer time frame to invest are false and I haven't seen any empirical studies proving otherwise. A loss has a greater emotional impact than a win. As recent as March 2020 people who claimed to be in it for the long run began bailing on asset allocations they were in love with when stocks were rising. (And likewise, this is a big reason for the speculation today - people are trying to make up for bad decisions at the bottom after hearing nothing but the positive outcomes in the media.)

Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.

 

[FAAM]

Re: Question: Why is the S Fund booming

[Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.[/QUOTE]

Hey B-litt, I really appreciate your posts & like this one. I'm no in-depth investor nor expert by any means.... most of what little I know is based on TSPtalk and the regular contributors like you in addition to Tom of course. On your last points... when one sees a stock going up, is it not a sometimes viable strategy to "performance chase" ... I think they call it Momentum Investing strategy? I've done some of that with modest amounts and done okay a lot of times; set my sell stops pretty high so if price doesn't hold up, not much loss, yet if it keeps going up, just adjust my stops higher frequently. That works better with bullish market conditions... until it stops working so well. I'm one of those nearing retirement, so I've likely been too conservative for some time with fairly low current risk tolerance. Thanks again and best to you.

 

[Boghie]

Re: Question: Why is the S Fund booming

[Allocating more to a particular fund because of past performance is performance chasing. Allocating more to a particular fund so your future goals don't go up in smoke is considered risk management.

Hey B-litt, I really appreciate your posts & like this one. I'm no in-depth investor nor expert by any means.... most of what little I know is based on TSPtalk and the regular contributors like you in addition to Tom of course. On your last points... when one sees a stock going up, is it not a sometimes viable strategy to "performance chase" ... I think they call it Momentum Investing strategy? I've done some of that with modest amounts and done okay a lot of times; set my sell stops pretty high so if price doesn't hold up, not much loss, yet if it keeps going up, just adjust my stops higher frequently. That works better with bullish market conditions... until it stops working so well. I'm one of those nearing retirement, so I've likely been too conservative for some time with fairly low current risk tolerance. Thanks again and best to you.

You didn't ask me, but since this is my Member Thread you goin' to have to listen to my opinion:nuts:

The investment strategy you mentioned is called 'Momentum Investing' - or, more informally 'The Trend is Your Friend'. If you have the ability to short sell you can actually make money on downturns as well. But, there is always a but...

Setting your stops close to the current market price seems smart, is smart, should be smart... However, once the stock stabilizes such a strategy will churn the account. You will sell on a 5% downturn and potentially buy back on a 5% recovery. You will have minimal gain while paying fees and taxes.

Additionally, and much more importantly, why do you think your trade will occur at the 5% decline? That will be when your brokerages automated system puts your stock on sale - NOT when that stock is purchased. If the stock is being dumped then you may very well not have the purchasers you need to get the trade confirmed. Also, you may end up behind some institutional investor or hedge fund who is bailing from the stock. In either case your trade will be delayed and there will be selling pressure on it. The worst case would be some dumb automated quant selling pressure which could cause the stock to dump 25% in an instant - only to recover it all in an hour.

There are much bigger players in the game. They also use this strategy - but their trades are acted on very quickly if such a trade can be made. Your request will follow the big boys. The big boys also have brilliant quants and automated systems. You really don't want to play that game with retirement money. Maybe with play money, but not with the money that keeps you from turning into the Alpo lane of the supermarket while in retirement...

 

[Boghie]

Re: Question: Why is the S Fund booming

Politicians discussing a tax 'reform' that increases investment taxes is not a good time to be invested:

• G: 22%
• F: 27%
• C: 24%
• S: 20%
• I: 7%

Expected Annual Return: Probably in the 6% range
Expected Risk: Probably in the 5% range

Summer is coming a anyway. Go away in May. But, why not bail out now... Who wants to be invested when CongressCritters and the President are making tax sausage:cheesy:

 

[Happy_Trails]

Re: Question: Why is the S Fund booming

I'm close to that:
G 20
F 30
C 30
S 10
I 10

 

[Boghie]

Super Duper Conservative Allocation

So, this super super very conservative allocation:

• G: 22%
• F: 27%
• C: 24%
• S: 20%
• I: 7%

generates a 7% average annual return with 7% risk (1)...

(1) As documented by the NeverWrong Quicken Investor|Allocation tool. As a note, the 'Expected Return' is an inflation adjusted return. Thus, you add 3% to that number to get the average return most folks use. In this case, the inflation adjusted annual return is 4% so the annual return is 7%. Clear as mud...

 

[Boghie]

Super Duper Conservative Allocation

Using PortfolioVisualizer BackTest Portfolio Asset Class Allocation (crossroaded to TSP):

• G: Short Term Treasury 22.00%
• F: Total US Bond Market 27.00%
• C: US Large Cap 24.00%
• S: US Small Cap 20.00%
• I: Intl Developed ex-US Market 7.00%

[table="width: 500"]
[tr]
[td]Allocation[/td]
[td]CAGR[/td]
[td]Risk[/td]
[td]Best CY[/td]
[td]Worst CY[/td]
[td]Max Dump[/td]
[/tr]
[tr]
[td]22/27/24/20/7[/td]
[td]8.19%[/td]
[td]8.15%[/td]
[td]23.61%[/td]
[td]-16.15%[/td]
[td]-26.47%[/td]
[/tr]
[tr]
[td]S&P500 (C Fund)[/td]
[td]10.80%[/td]
[td]15.12%[/td]
[td]37.45%[/td]
[td]-37.02%[/td]
[td]-50.97%[/td]
[/tr]
[/table]