Question about my G Fund rate of return >

[RDL]

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I have been invested 100% in the G Fund for the last year.

I am not the sharpest tack in the box when it comes to understanding this G Fund, so, I have a couple of questions for you.

1. I have noticed that the G Fund has been paying either .37% or .38% per month for a very very loooong time now. Why would it just drop down to .28% like it did for June? I have noticed it will do this only for a 1 month period. Last time it dropped to .28% was back in Nov, and then right back to .38% again the following month. What's the deal with that?

2. Since the G Fund has been yielding the same percentage for so long, my G Fund balance increases the same amount month by month (I am retired, so I can't contribute anymore). That's what I don't understand ... My G Fund balance increases $853 every month due to the interest I get. Because my total balance is increasing by $853 per month, I would think that I should get a little more than the $853 as time goes on ... but it just sits at the same increase month by month. Just don't make any sense.

Thanks,
Ron

 

[Birchtree]

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RDL,

What a pleasure it is to take a small peek into your retirement life - I assume you realize that eventually you will be required to start taking the required minimum distributions or a monthly payment plan of some kind. Your Uncle will start wanting his share. Over time you would be helping other boomers by sharing your experiences - we will all face the same problems.

I suspect that your balance grows monthly with the same G fund contribution and the reason it never increases is that you are not increasing your number of shares in the G fund. If you were involved in a dollar cost averaging allocation you would be buying more G fund shares. You would then see a small increase in your bi-weekly return from the G fund. As an example let's suspose you have $464,000 divided by the current G fund price of $10.91 equals approx 42,600 shares. Every time the G fund pays a penny you will make $426.00 or $ 853/month. This money is not being reinvested to acquire more shares. Let's see now $853 times 12 equals $10,236/year. That is not a bad return - but RDL your are sitting on top of a gold mine. The wife is calling for lunch - but I'll be back.

 

[RDL]

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Birchtree ...

Thank's for the fast reply.

I think I understand what your saying. I am not thinking in shares. My mindset has me thinking in cash.

But, look at this senerio:

Lets say Iput $100,000 in the bank. At the current interest rate, I get $200 interest at the end of the first month ... At the end of this month, I will now have $100,200 in my account due to the interest added tothe account at the end of the month.

Now ... the following month I will not get $200 in interest ... but, I will getmaybe $202 in interestsince the interest is now being paid on $100,200 and not my original $100,000.

This is what my G Fund should do. As long as the fund's rate of return remains the same, the total amount in my G Fund should increase a little more each month since the total balance is higher at the end of each month ..... But, in my case, my G Fund balance has only increased the exact same amount each and every month the fund has remained at a monthly rate of return of .37%

I'm still confused,

Ron

 

[macdtrader]

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You raised some interesting points with good observations. I recommend that you write to the Thrift Savings Plan and ask them these excellent questions. They will answer your letter and it would benefit all TSP investors if you will inform us what they tell you.

My fear is that TSP or Departmentof Treasurymay betryingtosavemoney on interest paymentswhilethe federal deficit is skyrocketing. Dr. Alan Greenspan's conundrum is thatlong term bond interest rates are falling while the Federal Reserve Bank is is selling more bonds and shrinking the money supply in an effort to raise short term interest rates.

The scary thing for G Fund investorsisthat G Fund consists only of special issue Treasury bonds nearly identicalto those used by the Social Security Trust Fund which President has admittedare worthlessgovernment IOUs. Hence he wants to give our children and grandchildrenprivate Social Security accounts where the Congress cannot spend theirretirement money any longer.

You may rememberNovember 1995 when the Treasury borrowed from the G Fund to keep the government from declaring bankruptcy when the federal debt ceiling was reached and Congress failed to raise the debt ceiling. Non-mission essential civil service workers were sent home for 2 or 3 days.I was concerned thatthe government shut down would ruin the stock market and switched my money to G Fund at the time (only one change per month was permitted then). It turned out to be an excellent month for the C Fund and I missed out on the entire rally. From that perspective, the C, S and I Funds seem to be safer investments since ourdollarsareinvested in stocks inthe private capital markets and the Congresscannot spend or use them to avoid bankruptcy.

 

[Birchtree]

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RDL,

I would like to take this opportunity to offer a real life demonstration of the power you have in your account. You after all have many years of experience dealing with the concept of thrust.

On 5/4/05 the C fund was selling for $12.60 the price I paid when I made my initial TSPtalk venture. A day prior it was selling for $12.44 and I missed that one. The S fund was selling for $14.00 and the day before it was selling for $13.80. As an example if I had an account value of $464,000 divided by $12.60 would give me 36,825 shares of the C fund. $464,000 divided by $14.00 would give me 33,142 shares of the S fund. The gain during the last 2 months for the C fund equals $.24 times 36,825 equals $8838. The gain during the last 2 months for the S fund equals $1.12 times 33,142 equals $37,117. There was a time on 6/17 when the C fund was at $13.08 and the S fund was at $15.11 a copper less than todays value. The C fund would look better if it were still up $.48, 36,825 times .48 equals $17676. A smart move would have been to trade out of the C fund at $13.08 and get back in at $12.80. But that's what makes a market.

I'm going to hold my C fund position with my current buffer gains and allow dollar cost averaging to help out on the way up. I believe that eventuall the C fund will take over as the outperformer going forward and when it does those thrusters will kick in to move me upward. I'm talking to you because I noticed your previous occupation which required many years of hedging your risks every time you went into the air. Are you ready to begin hedging some more risk and let your power that is available to you in your portfolio provide some significant gains in the following years. This board is an opportunity to help you learn and prosper during the next 20 years - it could be fun and exciting. I know I'm getting ready to rock and roll. I'm not trying to be a salesman - only trying to show you the opportunity you have at your side. Many others are going to be faced with the same problems in the near future and we can all learn from each other.

You are probably wondering by now what my position might look like. Currently I have a little over 30,000 shares of the C fund and 100% allocation into this fund to dollar cost average. $378,000 took a long time to grow - and now I plan to tripple that value before I'm finished. What is really amazing is that new folks coming into the workforce can starting in2006 put away $15,000/year. The salty-dogs can now put in an exra catch up of $5000. This does not include any match they might be entitled to get. My goal is to preach the virtues of the markets and capitalism and try to keep the accumulators out of the G fund - go for opportunity that this great country can provide. Of course nothing is ever easy - it will require constant dollar cost averaging and once the sums are substantial they will be prepared to pull out the pearl handle pistols and take down the targets. Take care -let me know if I scare you with this type of bravado. I'm a renegade contrarian bull by acquired nature.

 

[garnertr]

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Birchtree,

I'm a risk taker and I want to learn what it takes to do what you did, making triple! Wow!

So, out of curiousity, what would you suggest for:

a) being a risk taker
b) learning more on what it takes to be a risk taker

thanks!

 

[Birchtree]

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Gartnertr,

Don't misunderstand, I'm still working on the tripple. That is years away yet, especially in TSP where the volatility is miniscule. You have to use 100% leverage on your funds of choice. Your selection requires you to know alot of market history, what to buy, how long to stay, when to get out, etc. Investing takes a lot of time and hard work. I have a private account I call the oceanic and I'm trying to get back to my previous peak of $935,000 on 3/7/05. I'm actually trying to push through to 1M. And I think it comes this summer - lots of energy and commodity type stocks as well as utilities and industrial stocks. If you want to play think about opening a Roth IRA on line - you balances will add up quickly and you get the benefit of free dividend reinvestment as you proceed. When the market is slow or going down I always have dividend income on the way to the rescue to buy at lower prices. The markets are a great equalizer and can provide anybody with good opportunity. Some investors try turning investing into a science, but to me it is more of an art.

 

[biggdog1]

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RDL, Biggdog here. If I'm not mistaken once you retire isn't all TSP funds vested to the G-Fund? And if so I believe that your TSP only earns interest ( .37% per month ) but you don't increase shares. It's a rip,that's why some retirees close their TSP account and invest elsewhere. Would someone correct me in this if I'm wrong.

 

[tsptalk]

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garnertr wrote:

I'm a risk taker and I want to learn what it takes to do what you did, making triple! Wow!

This doesn't answer your question, but it might be a good time to discuss the old "Rule of 72". If you want to know how long it will take an investment to double, you divide 72 by your projected return.

At 10% a year, it will take about7.2 years to double your money. 72 / 10 = 7.2

The other way obviously works as well. How much of a return do you need to get in order to double your money in X amount of years?

Want to double your in 5 years? You'll need to average about 14 1/2% a year. 72 / 5 = 14.4

 

[RDL]

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biggdog1 wrote:

RDL, Biggdog here. If I'm not mistaken once you retire isn't all TSP funds vested to the G-Fund?

Biggdog ... You can move your money around any of the funds after you retire. I have been retired now for 1 1/2 years and I have have transferred my TSP money into both the C and S funds on 2 different occasions after I retired ...In fact, I made about $7,000in a 1 month period while in the S funds about 1 year ago.

I'm just a little scared of the market right now do to the Fed increasing interest rates and the rising cost of crude oil ... so I am just sticking with the G Fund until I feel a little safer about the stock market. Then it's going back in the S fund.

 

[Birchtree]

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RDL,

Apparently you already know how to play the game. When you decide to get back in let the board know so that we can follow your progress, providing you don't mind us peeps looking over your shoulder when you take aim. What kind of pistols do you use anyway - Colts, Ruger, Sig Aur. Be careful of Teknobucks - he'll give you more stuff to read it will make you dizzy. Good luck. Nice to chat with you today.

Dennis

 

[biggdog1]

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:'My Bad. Guess I'll go back to reading.

 

[viper]

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RDL,

Finally someone that I can understand, I really needed this information. You seem to know your stuff. Keep me up on things I would some help with this TSP thing. Maybe you can give me a heads up when you think its time to change switch funds. Can I select the amount?