Interfund Transfer vs Contribution Allocation

[yolli71]

Hi,

I'm a novice when it comes to investing and wanted to get some clarification on something I never really understood.

Do people match up their contribution allocations to what they already have in their tsp account? In other words, if I do: 60% C, 20% S, and 20% I for my contribution allocations...should my interfund transfer look the same (60% - c, 20% - s, and 20% - i)?

If I decided to switch my contribution allocation to 100% into L2050 because I'm not comfortable managing everything, does that mean I should make an interfund transfer and put everything I already own in L2050 as well?

 

[BigJohn]

Hi,

I'm a novice when it comes to investing and wanted to get some clarification on something I never really understood.

Do people match up their contribution allocations to what they already have in their tsp account? In other words, if I do: 60% C, 20% S, and 20% I for my contribution allocations...should my interfund transfer look the same (60% - c, 20% - s, and 20% - i)?

If I decided to switch my contribution allocation to 100% into L2050 because I'm not comfortable managing everything, does that mean I should make an interfund transfer and put everything I already own in L2050 as well?

As a general rule I match my contribution allocation to my current position in the TSP; however, I have deviated from that from time to time. For example, let's say the market is in a steady decline and you interfund transfer your way to the G to wait it out; in that case, I would leave my allocations in the market (C,S, or I) alone because you would be buying shares at steadily decreasing cost (and therefore getting more shares).

Conversely, say the market is in a fairly steady climb; you are in one of the stock funds reaping the benefits of positive action...would it make any sense to have your allocation set to the G?

My thoughts...and .50 cents won't buy a cup of coffee, or a mocha latte... but it is the best I got.

BigJohn

 

[nnuut]

Welcome to the Board yolli71!
Best of luck
Norman

 

[FAB1]

Welcome to the Board yolli71!
Best of luck
Norman

Ive always left my new contribs to land in the G...but I like what BigJ is saying, makes good sense...is there some kind of "limit" to changing that as well??? :suspicious:

 

[JTH]

My own preference is to have complete control of my money al all times. Back when I did contribute, I let the money drop in the G-Fund, but let me stress that I trade (IFT) often enough for this not to be of great concern.
If you only do a few IFTs a year, than I'd advice dropping into the funds you are already invested in.

 

[FAB1]

Okay yes but is there a limit to how many times you can change your contribution target(s)?

 

[jpcavin]

Okay yes but is there a limit to how many times you can change your contribution target(s)?

I don't think so.

 

[James48843]

Okay yes but is there a limit to how many times you can change your contribution target(s)?

Yes- you can only change the allocation once per day.

If you try and change more often than that, it's considered changing your existing allocation request.

 

[FAB1]

Yes- you can only change the allocation once per day.

If you try and change more often than that, it's considered changing your existing allocation request.

Only ONCE a DAY ??????

Sounds like a vitamin pill.

 

[FAB1]

I don't think so.

Thanks for the assertive answer there. :toung:

 

[jpcavin]

Thanks for the assertive answer there. :toung:

Can't be assertive until I can confirm. And I have confirmed you can change your contribution as often as you like, but like James said, not more than once a day. :toung:

 

[yolli71]

Okay, so let me use this example so I can understand this better. If I have 12k in my TSP from doing a 60-C, 20-S, and 20-I over the past 2 years, how do things change if I go to 100% L2050 allocation? If I switch to 100% L2050 allocation today (without touching my existing funds in the other accounts), what would my account look like in a year from now? Would I be purchasing 100% of L2050 but it gets converted to C,I, and S since I'm not doing an interfund transfer to match the 100% L2050?

 

[jpcavin]

Okay, so let me use this example so I can understand this better. If I have 12k in my TSP from doing a 60-C, 20-S, and 20-I over the past 2 years, how do things change if I go to 100% L2050 allocation? If I switch to 100% L2050 allocation today (without touching my existing funds in the other accounts), what would my account look like in a year from now? Would I be purchasing 100% of L2050 but it gets converted to C,I, and S since I'm not doing an interfund transfer to match the 100% L2050?

What you have in CSI stays and your new contribution (dollar taken out of your pay) goes to 2050L. So at the end of the year, you will have shares in CSI and L2050. The balances will not remain 60/20/20. If you were only invested in two funds (c/s for example) even if you did 1 IFT to rebalance your funds between 50/50 C/S, it will not remain 50/50 because they both earn or lose at different rates.
So to answer your question, at the end of the year, your L2050 fund will reflect what you put into plus/minus any market gains or losses. Your C/S/I funds will not reflect any new contributions but will reflect plus or minus any market gains/loses based on whatever balance it had at the time you changed your allocation to L2050 Fund.

 

[Frixxxx]

Okay, so let me use this example so I can understand this better. If I have 12k in my TSP from doing a 60-C, 20-S, and 20-I over the past 2 years, how do things change if I go to 100% L2050 allocation? If I switch to 100% L2050 allocation today (without touching my existing funds in the other accounts), what would my account look like in a year from now? Would I be purchasing 100% of L2050 but it gets converted to C,I, and S since I'm not doing an interfund transfer to match the 100% L2050?

I guess what you are asking is what you TSP account as a whole would look like.

(60%) 7200 - C
(20%) 2400 - S
(20%) 2400 - I
+
(0%) 0000 - L2050 * market rate

Now, if you start adding to just L2050, then your percentag rate will change based on your contribution. If you put in $500 then you would have
C 57.6%
S 19.2%
I 19.2%
L 2050 .08%

Your L2050 contributions will automatically cause the other percentages to change.

You still own the same number of shares but their values will change based on the market.

 

[jpcavin]

I guess what you are asking is what you TSP account as a whole would look like.

(60%) 7200 - C
(20%) 2400 - S
(20%) 2400 - I
+
(0%) 0000 - L2050 * market rate

Now, if you start adding to just L2050, then your percentag rate will change based on your contribution. If you put in $500 then you would have
C 57.6%
S 19.2%
I 19.2%
L 2050 .08%

Your L2050 contributions will automatically cause the other percentages to change.

You still own the same number of shares but their values will change based on the market.

This was much easier to understand than my convoluted explanation.

 

[KevinD]

You still own the same number of shares but their values will change based on the market.

This is the key to the OP's question.

You still own the same number of shares unless you do an IFT. Your contributions to L2050 will not change the number of shares in C, S or I. The value of the shares in C,S&I will change with the market but you will still have the same number of shares.

 

[yolli71]

Thank you all very much. This makes sense to me now.