L-Funds the way to go?

biggdog1

Member
I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.
 
biggdog1 said:
I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.

It's a well worn adage that "buy and hold" of a well diversified portfolio is the best way to go for the majority of people....(myself included). I'm sure you've heard that most actively managed mutual funds fail to out-perform index funds?

That said, there are some smart people here who put a lot of time and effort into doing REAL analysis of trends and history. They can, (and have) out performed some of the commonly used allocations, including the L funds. As long as you go into it knowing that you MIGHT fail in the endeavor, and as long as you enjoy the pursuit, I don't see anything wrong with the attempt!

I personally don't like the allocations in the L funds, so I built my own...and left a little lee-way for fun, and potential profit. ;) Right now, I'm slightly ahead of L40, more by accident than anything else. But the L funds are the perfect "hands off" solution for people who just don't want to think about their TSP account.

I think the lesson is important, though. Playing games isn't the right thing to do with your TSP account...but thoughtful analysis and playing the percentages isn't a mistake if understand the drawbacks, and if you enjoy it.

Tom
 
Tom, I agree. I also prefer dabbling with my own money. I was only pointing out when it looks as though the market sours, it may be a possible investment to use if you can't watch daily. I'm sure most of us got caught with our pants down this week and it was strange that "those L-Funds" done that well. We all should have taken notice when the Nicky took its hits earlier.
 
biggdog1 said:
I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.
Good call! I just crunched the 2006 TSP Tracker numbers. The average return was .61%. The median return was .66%. The L40 return beat 69% of the TSPers. The LINC return beat 49%.
 
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My YTD return is better than the L Funds. 60C 40S until 1/12 close and 100 G since. 3.70%. I probably will end up tanking to negative by Feb 1 for putting this in writing. Knock on wood. Not gonna try catching any knives on C, S or I in the next few days.
 
An update for the L-Funds to date:
L-40 3.77
L-30 3.33
L-20 2.92
L-10 2.22
L-Inc 1.10

For those that don't want to play. YTD I'm setting 2.07%.
 
Retirement is 2 or so years away. I am in L2010 100%. It is very difficult for me to stay in the G fund. With all the negative comments about the future of the C, S and I fund, I am beginning to wonder if I am doing the right thing.
Any thoughts appreciated.
 
TiCKed said:
I'm sure you've heard that most actively managed mutual funds fail to out-perform index funds?

One thing I always wonder when hearing this comment is that actively managed mutual funds usually target specific market segments or investment strategies. They're not usually intended to perform well in all market conditions at all times, but rather to follow a specific segment, without "style drift". You're supposed to buy and sell them as conditions favor or disfavor the fund's strategy. Comparing a targeted fund (intended as a variable component of a flexible or speculative portfolio) with an index fund (intended as a permanent base of a fixed buy-and-hold portfolio) doesn't seem to make much sense.

I think the L funds are fine, and IMO should be the default TSP investment for newbies. However I don't use them myself since I have a lot of my investments outside of TSP. When I rebalance my total portfolio I emphasize the strongest funds offered by each company/plan.
 
Saturneptune,

Negative comments about C, S, I basically equate to a bear market mentality. So, are we in a bear or bull market? Nobody really knows. Members can speculate about where stocks and bonds are headed but they do not know what the market will do tomorrow, this year, or even the next 5 years. How can you best position your investments for the near term and the long term? I have long advocated that members hold a balanced portfolio of stocks and bonds. By holding one of the L funds, you have achieved this objective. If you are uncomfortable with the potential of a 20%loss this year, the 50/50 mix of L2010 may be too aggressive for you. Consider L income instead - the maximum loss for the 20/80 mix of L income is around 5%. If you cannot tolerate any loss, stick with the G fund. Anyone holding 100% equities should be prepared for a 50% loss in any given year. Of course, most bail out before that and never find the right time to get back in. Holders of balanced portfolios avoid this trap by staying invested at a level of risk that they are comfortable with. See "The Intelligent Asset Allocator" by William Bernstein for very good, very practical asset allocation advice. Also, Rick Ferri's new book "All About Asset Allocation."
 
Once again the market kicks our butt Thursday and Friday. The week only had one up day for me. L-Fund YTD update:
L-40 2.74%
L-30 2.41%
L-20 2.21%
L-10 1.68%
LInc 0.84%

To date I'm setting 1.39% YTD !
 
SaturnNeptune,

Based on historical returns, the L 2010 Fund should provide an average return of 8.4% with a standard deviation of 8.4%. Therefore, statistically, 95% of the time, the L Fund return should fall between -8.4% and +25.2%. Over ten years, that works out to a +124% return.

On the other hand, historically, the G Fund has provided an average return of 5.75% a year with a standard deviation of 1.09%. Therefore, statistically, 95% of the time, the G Fund return should fall between +3.57% and +7.93%. Over ten years, that works out to +75% return.

Finally, inflation has, historically, averaged 3% or +34% over a ten year period.

There's risk no matter what you do.
 
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Saturneptune:

First, I would recommend that you go to tsp.gov and read the L fund information sheet and play around with the slide rule showing how the asset allocation becomes more conservative over time. The fact sheet indicates that if you will withdraw funds sooner than 2008, go with L income. If you will withdraw funds from 2008-2014, go with L2010. The fact sheet indicates the return assumption for L2010 at around 6.4% with a standard deviation of around 9.5%. It indcates the L income return assumption at around 5.75% with a standard deviation of around 4.5%. You sound like you will be withdrawing funds after 2008 and so, L2010 appears to be the right choice. However, your first post sounded somewhat cautious and worried about L2010. The L funds have built in risk reduction in that they are rebalanced daily and they become more coservative each quarter. Here is what this means for L2010 in terms of how much stock holdings it will hold:

October 2006 - 42.50% stocks
10/2007 - 36.50% stocks
10/2008 - 30.50% stocks
10/2009 - 24.50% stocks
10/2010 - 20 stocks

The standard deviation and return assumptions for L2010 are headed toward L income and are changing each quarter. They are literally, a moving target and will become more conservative. If this risk reduction still leaves you uncomfortable, you may want to consider L income now. As Rokid noted, G fund is not a great choice because your buying power will be eaten away by inflation and taxes. Even the most conservative L fund includes a 20% allocation to stocks.
 
Regarding std, I guess the experts are encouraging investors to consider the potential of a 3 std annual loss during the investors lifetime. In the case of L2010, that would be pushing -22% using the TSP return/std assumptions listed on the fact sheet. This sounds unlikely given that 95% of the returns fall 2 stds below or 2 stds above the mean. A 3 std annual loss could happen but would be highly improbable. Still, every investor should keep in mind the possibility of a 3 std loss however improbable it may be.
 
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Keep Working

If there is a 3 std loss before I actually retire I would just keep working. If I can accumulate funds from that very low level it will play out well financially over time. But if its after I retire I'm scr#w#D.
 
A 3 std loss, especially just into retirement, would quite frankly, suck, especially for those depending on their TSP accounts for a significant chunk of their retirement income. Rick Ferri's new book "All About Asset Allocation" includes a gut check simulation that most would be wise to consider.
 
Tally

Our in-house tally for Jan-Apr this year shows
L2040 at 5.46%
L2030 at 4.90%
L2020 at 4.36%
L2010 at 3.47% and
L-Income 2.05%.

Insofar as we are representative, the L2040 is doing better than 2/3rds of us. I am chasing it. If I can't overtake it Q2 this year, I am strongly considering joining it.

Dave
 
According to my record keeping for myself, I'm beating all L-Funds but not by much. I still say unless you are in retirement, don't want to bother etc. manage your own $$$ !
 
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