L vs do it yourself

[thurston]

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Just from my simple mind looking at the prices of the funds knowing they all started at $10 it seems pretty easy to see which ones have done the best.

Now looking at how they want to distribute money in the L funds, why would you put money in the F fund except to buy low and sell high. It hasn't even done as well as the G fund. Similarly the majority of the percent is in the C fund but it hasn't done as well as either the S or I.

So just how static are these allocations. Will they put 100% (talking billions here) in the G fund when the market goes south or just ride it down?

 

[Spaf]

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thurston

Based on what information they have released on these funds, and how they got there structure, from what analysis. And, who will supervise the funds. I have to rate the information to date as: insufficient. Rgds! :? Spaf

 

[mlk_man]

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Welcome thurston. I don't believe they will be trading that way. Apparently it goes by age bracket and length to retire so I'm assuming they will only adjust your allocations yearly. Aggressive with more time left, conservative with less time left.

If they did it the way you mentioned, I'm sure costs would go up. They may anyway.

Good luck,

M_M

 

[James]

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[align=left]From the July "Highlights" newsletter.
http://www.tsp.gov/forms/high05c.pdf[/align]
[align=left]Because it is important for each L Fund
to maintain its target investment mix, the
TSP will rebalance each L Fund automatically
— generally each business day — to
adjust the mix as a result of price changes
in the underlying funds. Then, each quarter,
the TSP will shift the investments in
each L Fund to a slightly more conservative
mix. In addition, experts will periodically
review the investment mixes of each
L Fund to be sure they are still appropriate.[/align]
[align=left]This still leaves a lot of questions.[/align]

 

[mlk_man]

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SUre does. Apparently, they have 5 different L fund allocations. Up to you to decide which is right for you.

http://www.tsp.gov/lifecycle/flash/comingsoon.html

 

[rokid]

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It would be interesting to see what return assumptions they're usingover the next 40 years. They seem really conservative. In addition, their FAQ explanation for a flat efficient frontier, i.e.the G Fund has really good risk/returns, is lame. The G Fund is only one end of the curve. The flatness is due to their low C, S, and I fund return assumptions. They may be correct. However, I'd like to see some numbers in addition to the graphics.

Finally, I've never seen a recommendationspecifying daily rebalancing. Usually the rebalancing recommendation is every 1-2 years. Letting your allocation ride, lets you take advantage of asset class momentum. Daily rebalancing during the 1990s would have been a disastrous strategy, i.e. selling the C Fund every day?:?

 

[mlk_man]

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I agree rokid. What I found interesting is that given the stock fund allocations, no matter if aggresive, moderate, or conservative, they put the least in the S fund as opposed to the C or I.

I'm actually beginning to think they should call the "I" fund the "dollar" fund..........:shock:

 

[alaskanmoosehunter]

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Just one man's opinion,

I think the L Fund will be for the slugs......People either to stupid :%or lazy :zzto learn how to determine their own destiny when it comes to retirement.

They will deserve what they get....One bad year in the market can take two or three years to recover!

Personally, I love my $$$$$ and will invest it& protect it at all costs.:!

Ben

 

[Pete1]

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The domestic allocation of the L fund choices is basically, the same or very close to the "total stock market index fund" or Wilshire 5000. I am not surprised that TSP went with this allocation as does Vanguard for its target retirement funds. Not what I do but I understand the choice as it is widely recognized and accepted as a sound, long-term allocation for the domestic market because in essence, it is the market. The international allocation is higher than some and this is probably a good thing. The frontier does seem somewhat flat and I do not like the dailty rebalancing element.

 

[Dakota]

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IO am having a hrd time figuring out what the L Fund even means its all greek to m e could some one please explain it in laymans terms

It simply does not make any sense to me

 

[Dakota]

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Dakota wrote:

IO am having a hrd time figuring out what the L Fund even means its all greek to m e could some one please explain it in laymans terms

It simply does not make any sense to me

Read more articles on the l fund I dont think its a good Idea for someone else to be moving your money around for u. I dont think that there exist a so called professiional that should be in control of anyones money. If a person just dont want to mess with it and want to let someone else make transfers for them, then i think they are very unconcerned about thier money or just dont think they have the knowledge or time to watch whats going on in the world of economics. its probable taht u would do better than just sitting in g fund. But get real if u pay attention to the markets and stay on top of things no one is better to place your bets than you yourself

 

[grandma]

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Dakota wrote:

...I dont think that there exist a so called professiional that should be in control of anyones money.

For some reason this suddenly brought to mind Lucille Ball trying to con banker Mr. Carmicheal, into letting her spend some money. ...not that the TV series character she was playing might not have needed the outside guidance, but from the point of view someone else was in control & had the say-so of what went w/her money.... It was funny then -

 

[Dave M]

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The L-funds have helped me by providing a benchmark against which I may compare myself. According to them, I fall in the 2010 fund which has 43 percent G inititially and the rest in the stock-funds. This showed me I was being too conservative and had too much in G at the time. It confirmed an impression I had gotten from calculations which showed that I would fall short of my goal if I did not invest more heavily. I have reduced my G-fund holdings.

Now I have given some thought to the daily rebalancing which takes place in an L-fund. In a steadily rising market, this will act to reinvest dividends as the constant percentage results in a rising share count and ever-faster gains. In a falling market the daily rebalancing will result in a decreasing share-count and thus insulate against further price falls.

The question is, what about an unsteady market which rises and falls? It isa question of rhythm or synchrony. As a rise occurs, shares increase; let a fall now occur and loss is maximized which leads to a decrease in the share count. If now the market rises, the gain from the lost shares also is lost.

Assuming a vacillating market is the baseline situation, it may be that daily rebalancing is a bit much. Butnow I am considering the whole question of rebalancing much more closely. I may resort to it.

Dave

 

[tsptalk]

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I find it interesting that they are doing daily rebalancing. That is like doing a transfer every day. I guess they don't discourage that type of activity.

 

[Birchtree]

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The L funds are strictly coloring by numbers generated by computer. There is no brain involved, nor is there any gut - can't feed the darn thing. As Hillary would say it takes a village - 26,000 is a small town and they are all safe and sound. I'll offer no criticism - there is always a different town down the road.

 

[grandma]

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Dave M wrote:

...act to reinvest dividends as the constant percentage results in a rising share count and ever-faster gains. In a falling market the daily rebalancing will result in a decreasing share-count and thus insulate against further price falls.

The question is, what about an unsteady market which rises and falls? It isa question of rhythm or synchrony. As a rise occurs, shares increase; let a fall now occur and loss is maximized which leads to a decrease in the share count. If now the market rises, the gain from the lost shares also is lost.

Dave

Since our total share count changes only on payday & we have purchased more thru our TSP contribution, are you referring to the end count in the different funds after each day's allocation? My mind is not grasping this........... :# thank you......

 

[Dave M]

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I was mistaken. Let's take a simple example where one is 50G and 50S. At the end of the day you are 49G and 51S because prices advanced that day. After rebalancing back to 50-50, we see that money has flowed out of the S-fund and into the G-fund -- half the day's earnings (assuming G-fund stood still that day). This was done by selling shares of S and buying shares of G. This will continue until earnings fom each fund are equal, because in this example we are 50-50. Over time, earnings from the G-fund will increase asmore shares are bought, and earnings from the S-fund will decrease as shares are sold and the money sent over to G.

So daily rebalancingassures the earnings from the various funds in the mix, will approximate the percentages of the mix. In our example, once earnings are equal then rebalancing has no effect. Half the earnings will come from the G-fund and the other half from the S-fund. The same number of dollars will reside in each, but the number of shares in each will adjust to changes in price, that is, earnings.

What if we are not 50-50, but say 1/3 - 2/3? Then, 1/3rd of the earnings from the stock fund will move into the G-fund rather than half as above, in order to maintain the 1 - 2 ratio. Get it?

In the case of a declining market, the opposite will occur. Money will leave the G-fund and migrate into the stock funds (where it will proceed to evaporate in the falling market).

In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?

Dave

 

[rokid]

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Dave M wrote:

In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?

The purpose of rebalancing is to keep the level of portfolio riskconstant. Rebalancingis also a form of market timing, i.e. selling high (best performing assets) and buying low (worst performing assets) in expectation of reversion to mean. However, mostrebalancing recommendationssuggest a much longer rebalancing period, e.g. quarterly to 1-2 years,to take advantage of asset price momentum, i.e. assets that are performing well tend to perform well for a while.

I'm assuming the L Funds, with daily rebalancing, are only concerned withkeeping the level of risk constant and aren't concerned with achieving a rebalancing premium. It will be interesting to see how the daily rebalancing impacts returns.

 

[grandma]

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Dave m wrote: In either case, I think I do not like it. I don't like the idea of selling shares in a rising market to prop up a weaker fund, and I don't like the idea of adding to my position in a falling market. This needs more thought. What is the theoretical basis? Is there a theoretical maximum which daily rebalancing attempts to achieve?
rokid wrote: ...I'm assuming the L Funds, with daily rebalancing, are only concerned withkeeping the level of risk constant and aren't concerned with achieving a rebalancing premium. It will be interesting to see how the daily rebalancing impacts returns.


Thank you much, fellows, for your replies.

How will the TSPstaff keep up w/doing this every night? Did they hire more people to tend to all this additonal work?

With rebalancing everynight, as you have mentioned. would you not be More apt to be buying high/selling low than not? Would the law of averages finally equal this out provided you have more than1--5 years to go?

. This is one of those things that I think I have an understanding of, only to realize a few days later it was a vague whisp in the night !! I will keep your notes where I can review this re-balancing. I am still working on BT's`dollar cost averaging'!! Spaf's classes got lost somewhere - I'll find them when I get the duplex taken care of - pray for that, will you !!!

Best of the market to you each - grandma

 

[rokid]

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Grandma,

Thanks.

I took a look at my son's Vanguard 2045 account information. They didn't mention the frequency of rebalancing. However, the more I think about it, the more daily rebalancing makes sense from a TSP, or Vanguard, management point of view. A computer can rebalance all of the L Fundsevery night with no additional human decision making required. In addition, TSP has enough assets to avoid actually selling real stocks/bonds and incurring additional fees. Although I'm not sure daily rebalancing is best for the TSP investor, I can't think of an easy way to prove that it is not.