TSP strategy for mid 40's with 20 years till retirement. Anyone? Bueller?

[Boghie]

Coastalite,

Sounds like you got some real mullah you can invest toward your retirement. I'll probably be there next year or early in 2013. With that much going in I would probably meet with a fee only financial advisor - one that can look at all your financial needs. It would probably cost about $500. Ray Lucia is local to me so I visited him. He told me that I was on target and to just continue as I had been. He gave me a baseline allocation. Additionally, Ric Edelman has affiliates all over (as does Lucia). Obviously, there are good local advisors as well.

You are talking serious money and serious tax law and serious investing. Seek a serious financial advisor - not just someone playing one on TSPTalk (me). I don't want you fighting the other inmates in some White Collar Club Med Slammer because of some advise I proffer :nuts:

 

[coastalite]

Sounds like you got some real mullah you can invest toward your retirement. I'll probably be there next year or early in 2013. With that much going in I would probably meet with a fee only financial advisor - one that can look at all your financial needs. It would probably cost about $500. Ray Lucia is local to me so I visited him. He told me that I was on target and to just continue as I had been. He gave me a baseline allocation. Additionally, Ric Edelman has affiliates all over (as does Lucia). Obviously, there are good local advisors as well.
You are talking serious money and serious tax law and serious investing. Seek a serious financial advisor.

I really don't know that we can afford to bump it up to max out our contributions. Going from about $11k to $17k is a big jump. An extra $6k is basically $230 more per month. I'll have to look at it from a tax standpoint. Maybe that extra $6k contribution might put us in a lower bracket, in which case it might make sense to do. I'll have to ask our financial advisor.

Speaking of which, we do have "a serious financial advisor". Have you looked at "First Command" and their military advisory board? It used to be that they only handled military. Then they started allowing Civil Svc, and now anyone can go to them. They handle some of our other investments, advise us on our TSP, and they look at the big picture once per year. They take it ALL into account and advise us accordingly. It is a free svc. However, if you set up any other investments/insurance through them, then they make account maintenance fees off that. The problem IMO, as with any advisor, is that you don't really know if the investment vehicles they are promoting are really 100% in your best interest, or are they promoting them because they're in their own best interest and making them the most in commissions and fees, etc. We do trust First Command though, simply because of their heavy involvement that specialized in financial advising for members of the US military. If the military trusts in them, nuff said.

 

[alevin]

Kaufmanrider,

I just researched the affect of the match on the limits again. Like everything else in our Byzantine tax code it is confusing.

However, you are 100% correct. The employee is entitled to contribute $17,000 toward his/her 401(k). The match is limited to 6% (we get 5%). That match does not affect your contribution limit. Geez, that makes the math much easier...

Boghie buddy, not sure where you get 6% from. It's 3% match to our first 3% (not including the automatic 1%). After that, they match .5% for each additional 1% we put in-up to maximum 5% match.

 

[Kaufmanrider]

Boghie buddy, not sure where you get 6% from. It's 3% match to our first 3% (not including the automatic 1%). After that, they match .5% for each additional 1% we put in-up to maximum 5% match.

I think he is referring to IRS limits.

 

[coastalite]

This morning I decided to move the 25% I had in F into G. So, I went from 25/25/25/25/0 to 50/0/25/25/0.

F was making me a little nervous so I am now camped out 50% in G, 25%C and 25%S.

For 2012, I think my strategy will be to watch closely and see if there's any kind of consensus to what the top 50 are doing and see if I can time some of my moves with theirs.

28 of the top 50 are 100% in S right now. 36 out of the top 50 have at least 25% in S.

Only 6 are 100% G, and 5 are 100% F.

 

[coastalite]

Well, I had my TSP at 50% G 25% C 25% S and just moved it a day or two ago to 75% S 25% C (just in time to see the DOW to drop 100+ & the S&P to drop 13+ as of 12:30 pm today). My timing is impeccable.

Maybe the market will rebound by the end of the day?

 

[Kaufmanrider]

Well, I had my TSP at 50% G 25% C 25% S and just moved it a day or two ago to 75% S 25% C (just in time to see the DOW to drop 100+ & the S&P to drop 13+ as of 12:30 pm today). My timing is impeccable.

Maybe the market will rebound by the end of the day?

Probably next week. I think today is an emotional response (knee jeck reaction) of the possible SP downgrades of European Countries. What has changed? We know they are having problems in Europe, so SP drops them, the interest rates for most of the countries high as it is.

 

[coastalite]

Maybe the market will rebound by the end of the day? I kinda doubt it with what's going on in Europe.

Speaking of Europe, I wish I had a crystal ball to see where the bottom of the I Fund is.

It's hard to imagine TPTB allowing the global economy to come crashing down.

Are we ever going to see fiscal sanity?

Another $1.2 Trillion? OMG! Wake me up from this nightmare.

 

[coastalite]

Wow, the markets are up today (thank you stronger than expected growth in China).

Go figure. Glad I didn't move everything to G. I was thinking about moving it all to G after Friday's performance and worry over Europe.


Also, does anyone know when the TSP is going to release 2011's annual statement?

 

[roskopfj]

Well, just because the S fund didnt do good in 2011 doesnt mean you should drop it. Take a good look at it year by year. It is the best fund around. I currently am 70% S and 30% C. I am 41 and have about 135,000 in the TSP, about 100K is in the S. The stock market is going to keep rising as employment improves and people start buying more. However you want to do it keep it in C or S, but not that much in I. The experts say this is the year for US stocks. Europe is going back into recession and the rest of the world is going slower than us, I used to be I but not anymore. I only go to safety of G or F when the market is going to crash like 2008.

 

[coastalite]

When can we expect to see our 2011 TSP annual statement?

 

[wvango]

The TSP issues quarterly statements in January, April, July, and October, and annual statements for each preceding year in February.

 

[coastalite]

Yesterday was two steps forward, today was one step back.

 

[coastalite]

I kinda wish I had never messed with my original allocation of 25s 50c and 25i (I think is what it was). I probably should have just held that and DCA'd it.

In retrospect, if I had just held that, I might be around 30% for 2013.... but since I allowed fear of a major correction to worry me - I spent valuable time parked in G, and therefore, I will be lucky to get a 13% return for 2013. I'm not really complaining, as my return could have been far far worse.

I learned a valuable lesson in that if you stink at investing, you might be better off with a buy and hold strategy.

I am thinking about maybe going something like 30c 50s and 20i & just stick my head in the sand and see if I can sit on that & HOLD this allocation for ALL of 2014.

Thoughts?

 

[OBGibby]

I kinda wish I had never messed with my original allocation of 25c 50s and 25i (I think is what it was). I probably should have just held that and DCA'd it.

In retrospect, if I had just held that, I might be around 30% for 2013.... but since I allowed fear of a major correction to worry me - I spent valuable time parked in G, I will be lucky to get a 13% return.

I learned a valuable lesson in that if you stink at investing, you might be better off buying and holding. Thinking about going 30c 50s and 20i AND JUST HOLDING THAT FOR ALL OF 2014.

Live and learn, I suppose. I, too, feared a correction and spent too much time trying to figure out how to time the market. Wasted opportunity. Hopefully, I won't make that mistake again.

 

[PLANO]

I kinda wish I had never messed with my original allocation of 25s 50c and 25i (I think is what it was). I probably should have just held that and DCA'd it. In retrospect, if I had just held that, I might be around 30% for 2013.... but since I allowed fear of a major correction to worry me - I spent valuable time parked in G, and therefore, I will be lucky to get a 13% return for 2013. I'm not really complaining, as my return could have been far far worse.I learned a valuable lesson in that if you stink at investing, you might be better off with a buy and hold strategy. I am thinking about maybe going something like 30c 50s and 20i & just stick my head in the sand and see if I can sit on that & HOLD this allocation for ALL of 2014. Thoughts?

I stay in stocks until my chart tells me to cash out. I'm not good enough at investing to try and time upswing, buy dips, etc. Half the time it works when I try it and half the time I take a hit and end up making less overall. The chart doesn't lie, just go with the trend, whatever it is. When my 15 day EMA goes below my 30 EMA, and my indicators are going negative, I run to G. If not, I ride out the dips and make most of the gains. The biggest advantage I see in this strategy is it gets you out early in the bear market so you don't take a huge loss and you are sure to make most, yet not nearly all, of the gains in a bull.

 

[Boghie]

I kinda wish I had never messed with my original allocation of 25s 50c and 25i (I think is what it was). I probably should have just held that and DCA'd it.

In retrospect, if I had just held that, I might be around 30% for 2013.... but since I allowed fear of a major correction to worry me - I spent valuable time parked in G, and therefore, I will be lucky to get a 13% return for 2013. I'm not really complaining, as my return could have been far far worse.

I learned a valuable lesson in that if you stink at investing, you might be better off with a buy and hold strategy.

I am thinking about maybe going something like 30c 50s and 20i & just stick my head in the sand and see if I can sit on that & HOLD this allocation for ALL of 2014.

Thoughts?

A 0/0/30/50/20 allocation results in:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 12%
That means that 2/3rds of the time you will land between -1% and 23% investment growth before inflation.​

The 'C Fund' is:

Expected Annual Return: 7% (10% before a 3% inflation chop)
Expected Annual Risk (Variance): 16%
That means that 2/3rds of the time you will land between -3% and 26% investment growth before inflation.
​

The 'S Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 20%
That means that 2/3rds of the time you will land between -9% and 31% investment growth before inflation.​

The 'I Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 18%
That means that 2/3rds of the time you will land between -7% and 29% investment growth before inflation.​

*Numbers from Quicken's Investment Asset Allocation tool

So, you will be over-weighting in the highest risk fund - and the one that boomed this year. That is generally called chasing returns. A two standard deviation variance to the negative in the 'S Fund' will result in a -29% return on that part of your allocation. Personally, I would watch for the correction in the 'F Fund' (not invest there yet, but be ready) and over-weight the 'I Fund' which has been a bit of a laggard. Maybe a 0/0/30/20/50 split - which in a normal market should result in a 10%/11% pre-inflation Annual Return/Risk ratio. About what your allocation is, but kinda doing a bit of market timing and reducing risk in a bubbly fund. Also, it would not be stupid to have a decent chunk in the 'G Fund' - maybe 20% to 25% - to purchase more in a fund that pops. But, like you that thought has lost me money this year.

I would strongly recommend Ric Edelman's 'The Lies About Money' for setting an allocation. There is science involved. This ain't pure gamblin' and it ain't pure guesswork. And, a 13% return while holding risk at bay during a year of confusion ain't too bad. Those 'S Fund' holders could have just as easily been banging on the bottom with -20% returns as sitting on the top with +38% returns. The expected returns are about the same. All those chaps may have peed in the water a bit upstream - but all that stuff is already under our bridge by now, eh.

Anyway, your call.

 

[coastalite]

Live and learn, I suppose. I, too, feared a correction and spent too much time trying to figure out how to time the market. Wasted opportunity. Hopefully, I won't make that mistake again.

I don't think anyone can figure this market out - but I do know one thing - if you are parked in G: no risk = no reward.

 

[coastalite]

I stay in stocks until my chart tells me to cash out. I'm not good enough at investing to try and time upswing, buy dips, etc. Half the time it works when I try it and half the time I take a hit and end up making less overall. The chart doesn't lie, just go with the trend, whatever it is. When my 15 day EMA goes below my 30 EMA, and my indicators are going negative, I run to G. If not, I ride out the dips and make most of the gains. The biggest advantage I see in this strategy is it gets you out early in the bear market so you don't take a huge loss and you are sure to make most, yet not nearly all, of the gains in a bull.

Thanks for your reply.

I really only recently in the last couple years - started trying to take a more "active" role in our retirement savings. When we hit our mid 40's - we started thinking it might be a good idea to start paying closer attention to our investments - and not just blindly trust our financial planner (like we had been doing for quite some time).

I won't say which company handles our financial planning - but we once trusted them - because they used to exclusively ONLY deal with the financial planning needs of members of our armed forces. We figured that if members of the military trust them, then why shouldn't we trust them as well (civil svc)? So, the company first dealt with only the military, then they added civil svc, but now - anyone can invest with them.

Anyway, our FP broke my trust a few years ago when he advised me to roll my old 401k into a fund that he highly recommended. The only problem is that he left out the part that there would be a rather costly "front load fee" involved. When a few months later I finally saw the huge amount (fee) taken out of my account - I about lost it and called him out on it - and he sat there & looked me in the eye & told me that he had most definitely mentioned the load fee. What a jerk! He may have glossed over it quickly - but he sure as heck didn't say anything about a $2,500 load fee to roll over into this fund - I think I would have remembered that - duh!). So, whatever man. That is a big reason why I am here in this forum today. I decided I wasn't going to let some dishonest jerkwad try to jack me around. If he pulled that one on me, no telling what else he was trying to pull over our eyes. Still irks me to this day, but a few months ago he got a nice surprise when he found that we pulled my 401k and both of our ROTH IRA's - and took our money over to Vanguard (where they have LOW FEES).

The old saying is true - that no one can better manage your money than you can. Our FP was out to line his own pockets - and he probably sent his kids off to college with part of our retirement savings - but I digress.

After doing further research a few months ago, I found that our FP had us parked in funds with HIGH expense ratio fees - about industry avg - something like 1.15% to 1.25% - not to mention the hidden 12b1 marketing fees - or whatever they call them. I feel like we had been taken advantage of for years... no telling how much we paid out in high fees over the years... So, I moved my IRA Rollover and both our ROTH IRA's to similar funds with VANGUARD - and their fees are ONLY .18% - and no hidden 12b1 fees. So, we will literally save tens of thousands of dollars (in fees) over the long haul - depending on market conditions obviously...

I really had no idea the extent that we were being fleeced - till I started doing much more research.

I spent quite a bit of time with the nice folks at Vanguard on the phone (several hours) - and they have "fee calculators" - and crunched some numbers for me.... forgot exactly how he worded it but basically - with either current or avg market conditions - those high fees that people are paying to invest with the BIG NAME companies (like Franklin Templeton & Invesco - and all the others that charge over 1% on avg in fees)... Vanguard crunched the numbers and told me that a $100k investment over 20 years with industry avg fees of over 1% - we WOULD LOSE about $55k in FEES - slowly skimmed off the top over the course of 20 years.

So, anyway, we are thrilled so far with Vanguard - and feel a huge weight off our shoulders - not having to pay such high fees. Plus, the Vanguard funds we chose (VFORX) are pretty heavily diversified... and are similar to the 2040 L Fund where they get more conservative as you approach retirement age. With us not all that savvy with investments, we felt it might be a good idea to let Vanguard handle making our investments more conservative as we got closer to retirement - and if at some point we find better funds - we will xfer to them instead (w/out penalty).

Anyway... felt good to get that off my chest - thanks for listening and hope I wasn't off topic.

 

[alevin]

A 0/0/30/50/20 allocation results in:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 12%
That means that 2/3rds of the time you will land between -1% and 23% investment growth before inflation.​

The 'C Fund' is:

Expected Annual Return: 7% (10% before a 3% inflation chop)
Expected Annual Risk (Variance): 16%
That means that 2/3rds of the time you will land between -3% and 26% investment growth before inflation.
​

The 'S Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 20%
That means that 2/3rds of the time you will land between -9% and 31% investment growth before inflation.​

The 'I Fund' is:

Expected Annual Return: 8% (11% before a 3% inflation chop)
Expected Annual Risk (Variance): 18%
That means that 2/3rds of the time you will land between -7% and 29% investment growth before inflation.​

*Numbers from Quicken's Investment Asset Allocation tool

So, you will be over-weighting in the highest risk fund - and the one that boomed this year. That is generally called chasing returns. A two standard deviation variance to the negative in the 'S Fund' will result in a -29% return on that part of your allocation. Personally, I would watch for the correction in the 'F Fund' (not invest there yet, but be ready) and over-weight the 'I Fund' which has been a bit of a laggard. Maybe a 0/0/30/20/50 split - which in a normal market should result in a 10%/11% pre-inflation Annual Return/Risk ratio. About what your allocation is, but kinda doing a bit of market timing and reducing risk in a bubbly fund. Also, it would not be stupid to have a decent chunk in the 'G Fund' - maybe 20% to 25% - to purchase more in a fund that pops. But, like you that thought has lost me money this year.

I would strongly recommend Ric Edelman's 'The Lies About Money' for setting an allocation. There is science involved. This ain't pure gamblin' and it ain't pure guesswork. And, a 13% return while holding risk at bay during a year of confusion ain't too bad. Those 'S Fund' holders could have just as easily been banging on the bottom with -20% returns as sitting on the top with +38% returns. The expected returns are about the same. All those chaps may have peed in the water a bit upstream - but all that stuff is already under our bridge by now, eh.

Anyway, your call.

This is the clearest explication I'v seen from you of your risk calculations for each individual fund and how the variances influence your allocation decisions. I get it-finally. I've been too stuck on the black swans flying in the stratosphere that haven't come back down to earth yet. they're still out there, but have decided I've spent too much time looking up for falling skies, not enough time spent looking at what's under my nose. It's a new year next week, planning on changing things up a bit. still a lot risk averse, but admit I need to take some intermittent risks nonetheless. did some retirement income calcs the other day, if I don't get on the stick, and off the dime, won't be able to call it quits at MRA+30, or for a few years after that either. maxed out tsp contribs plus maxed out Roth won't cut it if the money doesn't grow along the way at least enough to exceed inflation.