Long term allocation

[grums]

imported post

Hey all, got some more questions First, let me say I do not plan on changing my allocations except to periodically rebalance, as I have 29-30 years to retirement.

I recently changed my allocation from 100% G to the moderately aggressivelong term buy and hold recommendations on this website: 20% G 40% C 20% I 20% S.

I was looking over the tsp.gov 10-year rates of return. If I am reading this right (and I may not be, as I am very new at this), it looks like the highest rates of return were:

C > S > F > G > I

I noticed alot of people saying how bad the F fund is, but according to what I've seen, it had the 3rd highest rate of return over the long term.

I was wondering why all the negative press on the F fund?

I was also wondering what thoughts were on allocating according to the historical rates of return. For example, put a larger percentage in C, then decreasing into S, F, G, and possibly eliminating the I fund altogether?

Keep in mind this is all for the long-term, with few allocation changes, as I dont have the stomach to do what most of you do, though I admire it!

Thanks in advance!

 

[tsptalk]

imported post

Hi grums. As you probably know, past performance is no guarantee of future results. The G and F funds returns don't look too bad vs. the stock funds when you include 2000-2003, one of the worst bear markets in history. I feel the bear is behind us. If you are a market timer, it is time to get aggressive. Since you are not a timer, you have to find a more diversifiedallocation you are comfortable with and stick with it.

The F fund gets a bad rap becauseduring bull markets (stocks moving up) interest rates tend to stay flat or go up to control the economy. When interest rates stay flat or go up, the bond fund does fair at best. The best time to be in the F fund is when the economy is slowing down and the Fed starts to lower rates to stimulate it. That's why the F fund did well over the last few years.

This last several months has been kind of an anomaly. The economy is supposed to be heating up so you'd expect rates to go up (bond fund to go down) but the rates have not gone up. Some think this is evidence that the economy is not as strong as we are being led to believe. I'm not smart enough to know what is really happening with that. I just know what should be happening if the economy is getting stronger.

Over the longer term, stocks have and probably will continue to outperform bonds. The I and S will give you the most bang for your buck but they are more volatile than the C fund. The S will be less attractive if interest rates are increased significantly. That's when you'd want to concentrate more on the C fund.

The allocation you chose, 20% G 40% C 20% I 20% S, is a nice aggressive allocation but expect to hit some bumps in the road. You can add some F and lighten up on stocks if you want more of a cushion and less volatility.

Hope that helps,
Tom