L2050 Fund

[edfong]

Does any one think the Core Funds of G F C S and I are over priced or over valued? My belief is that the L Funds Returns are a Weighted Average of the Core Fund's Returns.

 

[tsptalk]

Over priced as far as priced more than their targeting index? Or just over priced as in, the market is over priced?

The L funds are just various splits of those 5 funds and reallocated daily to keep their prospectus' allocation.

 

[edfong]

Value is in the eye of the beholder. Of course, the general consensus is the that the stock market is overvalued as measured by P/E ratio. It certainiy is heavily weighted by the success or failures of the high tech giants headquartered here in Silicon Valley. And for the most part, the FAANG companies do not pay dividends as they put their earnings back into their business. And the FAANG companies as a rule do their manufacturing overseas.

My question regarding the possible overvaluing of the Core Funds is best represented by how government employees still continue to choose to invest in G Fund when now more than ever it cannot keep up with inflation given the declining interest rates as the Fed continues to make borrowing easy. Simple Supply and Demand means that even at $16-17 per share, it is expensive relative to say I fund which has a negative return year to date. It is cheaper to manufacture overseas.

Regarding the L Funds merely being baskets of the Core Funds, we now have L2035 trading in the neighborhood of $10 per share. But only two months ago, if an investor felt he should be in that place before his retirement in 2035, he would have been forced to buy 50% of L2030 and 50% of L2040 both trading in the neighborhood of $30 per share. Of course L2050 is the neighborhood of $20 per share.

When you buy a ten or five pound bag of potatoes, you get a per unit cost break over picking individual vegetables. But should you pay extra for the pre-packaging? You do with L Income over maintaining an allocation of the Core Funds yourself.

The L Funds are not perfect. But they were put in place in an attempt to help people not comfortable making their own allocation choices beyond the preservation safety of the G Fund.

 

[tsptalk]

We may be talking about two different things because it sounds like you have a good understanding of this. But regarding price and value... Will Apple's stock be any more or less valued after it does its 4 for 1 stock split at the end of the month? Will it matter if you owned one share for $500 or 4 at $125 each?

 

[Bullitt]

I still believe L2050 is underpriced relative to the older L Funds. Now I believe L2065 and L2060 and L2055 are underpriced relative to L2050.

Here are a few S&P 500 index funds. They all track the same index but have different prices.

VFINX = $314
FXAIX = $118
SWPPX = $52
VOO = $311
IVV = $340
PREIX = $90
BSPAX = $402

PREIX has $31.8B under management but trades at $90
https://www.morningstar.com/funds/xnas/preix/quote

BSPAX has $24.1B under management but trades at $402
https://www.morningstar.com/funds/xnas/bspax/quote

What difference does it make. If the S&P 500 goes up 1% on the day, the fund goes up 1%. Their five year performance is roughly identical as they both track the same index. The difference is probably tracking error or slightly different fees. (Full five year performance is PREIX 74.15% and BSPAX is 73.58%, again differences in tracking or fee structure)

 

[McDuck]

How can 3 of the L-funds have an 10.9% Ytd return when the Highest 'regular' fund the C-fund have a Ytd of 9.9%?

 

[papahotel66]

If I'm not mistaken those three funds came into existence this year after the March low so they missed the downturn and are up that much since their inception.

 

[tsptalk]

Yeah, started at $10 on July 1.

 

[edfong]

Gentlemen, I thank you for your input...it does make me re exam what I am suggesting about market efficiency. The input about all the different S&P 500 index funds having different prices is a fair point about the overall stock market having high P/E ratio. But my point is that L2050 and the newer L2055, L2060 and L2065 especially NOT as efficient as they are meant to be all on the same frontier---the basis for the different allocations of the Core Funds as designed by Aon and Mercer. What really screws up the newer L2055, L2060 and L2065 was they are not implemented as designed. The TSP Board decided to not fight Trump and so they do not differ by increasing exposure to China as you go further out into the future on the efficient frontier. What it comes down is whether you believe Harry Markowitz (U.C. San Diego) deserves his Nobel prize for publishing Modern Portfolio Theory in 1952.

 

[edfong]

Regarding the Apple stock, it does matter to have four shares vs. single share (same total valuation). Your down side risk is reduced when when you have four cheaper shares. Your upside potential is increased because more people can afford whole shares. Of course, I am assuming normal broker and transactions costs where whole shares meaningful, but now people can buy stock shares to the decimal point like mutual shares. Why do you think Apple chose to do the stock split?

 

[Bullitt]

Why do you assume it's only men providing input here? There are also excellent female contributors on this site.

What really screws up the newer L2055, L2060 and L2065 was they are not implemented as designed. What it comes down is whether you believe Harry Markowitz (U.C. San Diego) deserves his Nobel prize for publishing Modern Portfolio Theory in 1952.

L2055 Fund is currently 99% stocks, 1% bonds.

Same fund with Vanguard is 89% stocks, 11% bonds.

What am I missing? Are you concerned TSP doesn't invest in Chinese companies or that TSP has too high allocation to stocks vs bonds?

My question regarding the possible overvaluing of the Core Funds is best represented by how government employees still continue to choose to invest in G Fund when now more than ever it cannot keep up with inflation

"The G Fund's investment objective is to produce a rate of return that is higher than inflation while avoiding exposure to credit (default) risk and market price fluctuations."

https://www.tsp.gov/funds-individual/g-fund/


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RE: stock splits - They have zero affect on stock valuation.