IFT basic question

[Mike vB]

Well it is basic, but complicated.

I'd like to know how IFT works, specifically how a share is "bought" and how switching helps/hurts.

I'll put a scenario together for those who would like to help explain it to me.

This may be beneficial to other new to investing TSP, my guess it is just like a common stock, just with a lot more math due to 3 decimal places.

The Scenario:
- A three "day" event with 2 funds: Fund A (safe) and Fund B (volitile).
- The premise is that you start out in A, and realize that B will have an upward movement so you want to capitalize on the movement.
- You know B will decline after the peak, so IFT back into A to hold your gain.
- The IFT from A>B will occur on "day 2" and the B>A IFT will occur on "day 3"
- Numbers are rounded for math ease.


- There is $1000 in the account to start out with.

Fund A share costs: Day 1-$1.00 Day 2-$2.00 Day 3-$3.00

Fund B share costs: Day 1-$2.00 Day 2-$12.00 Day 3-$4.00


My take:
So you start with $1,000 in your account - or 1000 shares of A
Buying B you end up with 500 shares @ $2 each
Day 2 sees a 6x gain in B giving you 3000 shares (now $6,000 in the bank) - would have been $2,000 if left in A
IFT on day 3 back to A now gives you 3000 shares @ $2.00 each
A earns another steady $1.00/share earning you $3,000 more - total of $9,000 in the bank

Close?

 

[ATCJeff]

Well it is basic, but complicated.

I'd like to know how IFT works, specifically how a share is "bought" and how switching helps/hurts.

I'll put a scenario together for those who would like to help explain it to me.

This may be beneficial to other new to investing TSP, my guess it is just like a common stock, just with a lot more math due to 3 decimal places.

The Scenario:
- A three "day" event with 2 funds: Fund A (safe) and Fund B (volitile).
- The premise is that you start out in A, and realize that B will have an upward movement so you want to capitalize on the movement.
- You know B will decline after the peak, so IFT back into A to hold your gain.
- The IFT from A>B will occur on "day 2" and the B>A IFT will occur on "day 3"
- Numbers are rounded for math ease.


- There is $1000 in the account to start out with.

Fund A share costs: Day 1-$1.00 Day 2-$2.00 Day 3-$3.00

Fund B share costs: Day 1-$2.00 Day 2-$12.00 Day 3-$4.00


My take:
So you start with $1,000 in your account - or 1000 shares of A
Buying B you end up with 500 shares @ $2 each
Day 2 sees a 6x gain in B giving you 3000 shares (now $6,000 in the bank) - would have been $2,000 if left in A
IFT on day 3 back to A now gives you 3000 shares @ $2.00 each
A earns another steady $1.00/share earning you $3,000 more - total of $9,000 in the bank

Close?

I only see one error.

Day 2 you would still have only 500 shares. Number of shares didn't change , only the valuation.

 

[Mike vB]

So then:

Day 1
Start with $1,000 in your account - or 1000 shares of A
Buying B you end up with 500 shares @ $2 each

Day 2
6x $ gain in B giving you $6,000 in the bank (still 500 shares)
IFT back to A @ $2.00 each = 3000 shares ($6,000 in bank)

Day 3
A earns a steady $1.00/share = earning you $3,000 more - total of $9,000 in the bank


Bottom line - IFT to a volitile fund, let it rise, IFT back to safe - rinse, repeat, retire

 

[tsptalk]

Bottom line - IFT to a volitile fund, let it rise, IFT back to safe - rinse, repeat, retire

That's about it Mike.

My personal goal each year is to try to beat the return of the benchmark S&P 500 or C-fund. Assuming that we only have the C and G (safe) funds to choose from, the only way to do that (beat C) is to try to be out of it when it is going down.

Good luck!

 

[Mike vB]

And if you waited until Day 3 to IFT:

Day 3:
B loses 66% of value = now only $2,000 in bank (500 shares)
IFT to A = 666.6 shares (4/3)

Day 4 (presuming steady $1 increase) = $2666.66 in bank


?

 

[Mike vB]

Re: IFT question

So I imput my IFT online, it takes place at midnight? Or?

With all these last minute market swings, would it be safe to say that the IFT is speculative at best???

EDIT: Found the answer

The deadline each day is 12 noon EST. If you complete the transaction before noon EST your new allocation will begin the next morning. If you miss the 12 noon EST deadline your money will be moved the following day. To have a transaction effective on a Monday, you must meet the deadline on Friday at noon.

 

[Mike vB]

the only way to do that (beat C) is to try to be out of it when it is going down.

like now :blink:


Since I'm just now starting TSP, I think I'm getting in at a good time - nearing the point where I switch a good portion to C from G - if not 100%

I'll have about 10 years to retire, so I'm betting on the fact that the S&P can't go down TOO much further, and will have a decent rise before that time arrives. Unless at the 10 year point we get another blunder by our leaders.

But I should be moving funds back into G as I approach that milestone.

 

[ATCJeff]

So then:

IFT to a volitile fund, let it rise, IFT back to safe - rinse, repeat, retire

Yup, sounds easy right?

 

[ATCJeff]

Re: IFT question

So I imput my IFT online, it takes place at midnight? Or?

With all these last minute market swings, would it be safe to say that the IFT is speculative at best???

EDIT: Found the answer

IFT takes effect COB the day of....as long as you meet the 12 ET deadline.

Right now with the volatility it's pretty much a guess.

 

[tsptalk]

I'll have about 10 years to retire, so I'm betting on the fact that the S&P can't go down TOO much further, and will have a decent rise before that time arrives. Unless at the 10 year point we get another blunder by our leaders.

Dollar cost averaging into the market now is probably smart right here. Putting all your money in now with the idea of holding for 10 years is a different story.

If the 840 level is broken to the downside on the S&P 500 on a closing basis for more than a day or two, and I'd say we risk seeing another 15% to 25% to the downside from where we are now (873).

 

[Diesel]

I'm learning here. Very scary indeed. Thanks for posting.

 

[Show-me]

Dollar cost average is the only way to make a bad return look better. The more you buy at depressed prices, the more you average improves.

Feel the burn and DCA as much as you can while the price is low.

 

[peterson82]

Question about IFTs. Considering we are allowed to increase the G-fund as much as we like, do they count towards our 2 trades if, say, we move to all G as my first move of the month?

My guess is that it does, which means hold off on throwing things into the G fund until you are finished making your two moves.

(Sorry, a bit off the above topic, but still a simple IFT question)

 

[XL-entLady]

Question about IFTs. Considering we are allowed to increase the G-fund as much as we like, do they count towards our 2 trades if, say, we move to all G as my first move of the month?

My guess is that it does, which means hold off on throwing things into the G fund until you are finished making your two moves.

(Sorry, a bit off the above topic, but still a simple IFT question)

You are correct. The rule is "two moves anywhere and then only to G for the rest of the month" and if you move to G with one of your first two moves, it still counts as one of your two allowable moves "anywhere".

Good luck,
Lady

 

[peterson82]

I should change my last statement to: Instead of using your first IFT of the month dumping things into the G-Fund do it on the (second-to-)last day of the previous month.

And, thank you XL.

 

[Mike vB]

Peterson -

Excellent point, thanks for asking!

I didn't know that either!