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

[coastalite]

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.

Well that stinks... I was logged in and just typed a reply - and then somehow I wasn't logged in - so I lost my reply. That will teach me to ctrl c from now on before posting. F&%K!


Oh well. To make a long story short: before the noon deadline - I decided to change it up a little and go 30C/60S/10I.

Rolling the dice but staying in the game. Spent too much time screwing around on the sidelines in G and missed some rallies...

So, I am done playing around and am going to stop succumbing to fear and stay in it to win it.

On the other hand, for someone like me - the L2040 fund doesn't look too bad. I'm just not savvy enough at investing to be moving in and out of funds, changing allocations, and generally trying to time the markets.

I need to find an allocation and stick with it, or just let it ride in L2040 and let the fund do the work of reallocating as I get closer to retirement.

Any thoughts?

 

[Pill]

Yes, buy and hold works, DCA, stay in to win no matter how close you are to retirement. Market sinks, you throw more money at it. My humble opinion.

 

[nasa1974]

coastalite, the one thing you want to do is try to invest as much as you can afford into your TSP account every month.

 

[coastalite]

coastalite, the one thing you want to do is try to invest as much as you can afford into your TSP account every month.

Yeppers, the plan indeed is to invest as much as we possibly can into our TSP account each year.

The spouse & I each also have a ROTH IRA (w/Vanguard) - along with $50k in an old 401k that was rolled over from an old employer plan into a traditional IRA (also w/Vanguard). Not quite sure yet what to do with the traditional IRA. Do we just let it sit by itself - or do we slowly convert it into the ROTH (or maybe all at once). Any thoughts?

We're just not sure if it makes financial sense to convert it into our ROTH. My guess is that we'd need to sit down with a CPA - or do some research and figure out on our own if it's worth converting - or if we should just leave it alone.

 

[Bullitt]

Some good replies in here so I can't add much more. Worst thing you can do is mess with your allocation more than maybe twice a year. A good time to rebalance lies ahead.

I'm 34 and go 65 stocks 35 bonds/cash in TSP. Not what a wall street broker who gets paid by commission would call an aggressive portfolio, but my gain is his loss.

Keep saving and contributing, it's the only thing you have any control over. 20 years is a long way to go so if you keep increasing the savings rate every time we get a 1% raise, you'll be fine. Just make sure you have a good rainy day fund to go with.

 

[coastalite]

Some good replies in here so I can't add much more. Worst thing you can do is mess with your allocation more than maybe twice a year. A good time to rebalance lies ahead.

I'm 34 and go 65 stocks 35 bonds/cash in TSP. Not what a wall street broker who gets paid by commission would call an aggressive portfolio, but my gain is his loss.

Keep saving and contributing, it's the only thing you have any control over. 20 years is a long way to go so if you keep increasing the savings rate every time we get a 1% raise, you'll be fine. Just make sure you have a good rainy day fund to go with.

I'm curious, why is messing with your allocation more than a couple times a year - the "worst thing you can do"? It seems like a lot of folks on the Autotracker routinely have 1 or 2 IFT's each month. The guy leading the tracker at +3.70% for the year I think has already made 3 IFT's for YTD.

Also, I was watching a recent "MSN.com" retirement investment strategy video - and the talking head in the video said that (and I'm paraphrasing) - a good way to decide what your retirement allocation should be is to subtract your age from 100 to figure out what % you should be in stocks/cash/bonds.

For example, if you are age 40, then: 100-40=60% stocks w/the remaining 40% to cash/bonds. I think the video said 50/50 cash/bonds - so for the TSP - For someone age 40, it would be: 60% (allocated as you see fit into C/S/I) and the remaining 40% (allocated to 20G/20F). Frankly, I don't think the MSN.com video is bad advice. It seems sensible. However, if you are 65 - I doubt you're going to want to be 35% stocks.

All of the L Funds eventually end up as the L Income Fund - which is allocated 80% Cash/Bonds (72G/8F) & 20% Stocks (12C/3S/5I).

As I understand the L Funds (and not just the TSP target date funds - but other target date funds out there too); the rationale is that they're not designed to JUST get you TO retirement, but rather, they're designed to try to get you THROUGH retirement as well (hence the 80% cash/bonds & 20% stocks allocation). If you're retired and taking distributions while in 100% G - then you're not only depleting your nest egg - but you're also getting beaten down by inflation and not allowing at least SOME of that nest egg to try to work for you.

So anyway, I'm considering the possibility of going w/the L2030 Fund - and just leave it alone - since I'm not a good enough investor to try to time the market. For Jan 2014 - the L2030 Fund it is allocated at 66.5% stocks and 33.5% (G&F). Not sure, but isn't that allocation similar to yours, Bullitt?

Speaking of the L Funds, does anyone have any other insights or thoughts on the L Funds - & also - why aren't they more popular? It seems they are perfect for either the lazy or inexperienced investor - because they do all the work for you and get more conservative as you get closer to retirement: they do all the rebalancing and reallocating for you. So, what's the drawback? Is it the way they have them allocated? Not enough weight given to the S Fund? Too much weight given to the C and/or I Fund? Just curious what others think???

 

[Birchtree]

I'm 100% stocks and then some with margin and plan to stay that way through my retirement years collecting a nice income stream. If I need more money I can always harvest some capital gains - you have to take taxes into consideration - and capital gains are tax protected. Stocks will throw off cash - last year I had 158 dividend increase announcements and fully expect the same for 2014 if not even more. This cash currently is reinvested and is like a cola. The principal will fluctuate with market gyrations but the income stream usually remains constant and grows with economic growth. When the time is right roll your TSP account into a traditional IRA for more flexibility and income stream. Later on do a conversion roll over from IRA into a Roth IRA for tax free income. But as always try to learn before you churn. Keep your AGI as low as possible and keep the dems out of your pockets.

 

[Bullitt]

The L Funds probably don't seem popular because it's a set it and forget it investment. You dump your money there and call it a day. I'd say 95% on the MB plan on beating the averages over time despite the statistics being strongly against their favor. Plus, most won't admit it but when they had 20 years left they weren't saving, they were buying pickup trucks and houses so now they need to make up their deficit with mind blowing returns.

Your L2030 allocation may be similar to mine now, but not in a few years. I plan on riding 65/35 into the sunset.

As to tinkering with the portfolio, that means making a change such as going from 65/35 to 60/40. That would be a change. You'll see many going 100% G to 100% C twice a month or messing with the I Fund fair value to gain a penny. Some must have the time and are willing to try to do what is nearly impossible; that is beat the market over time.

In the end, everyone has to choose their own path. Read a few books by Bernstein, Swedroe, Ferri, Siegel, Swenson, or Jonathan Clements and you'll know all you need plus you'll have time to enjoy life. You really don't have much control over your return. Control the things you can- for one being your savings rate and two your asset allocation. Oh and don't forget to save for a rainy day.

 

[Cactus]

Coastalite, if you don't want to leave your IRA by itself or convert it to a ROTH, you may want to look into rolling it into your TSP. I think it is TSP Form 60 for that.

As for the L Fund. The thing I don't like about it is the daily rebalancing. Seems to me that financial advisers used to tell us not to rebalance more than once a quarter. All I know is I got burned bad when I tried it in 2008 and that left a bad taste in my mouth. The daily rebalancing works great with typical up-N-down market movemnts. As things get more extreme though, you are pulling more money off of that rocket daily in rally years like 2013 and throwing good money after bad as it drops into a hole like 2008.

Like I said, that's just me and I'm biased so take it for that. I think the L Funds are designed for folks who never look at their funds and expect it to be there when they retire. If you check funds once or twice a year you can always manually set your allocation to the L Fund of your choice and rebalance them yourself whenever you check in.

 

[coastalite]

Coastalite, if you don't want to leave your IRA by itself or convert it to a ROTH, you may want to look into rolling it into your TSP. I think it is TSP Form 60 for that.

As for the L Fund. The thing I don't like about it is the daily rebalancing. Seems to me that financial advisers used to tell us not to rebalance more than once a quarter. All I know is I got burned bad when I tried it in 2008 and that left a bad taste in my mouth. The daily rebalancing works great with typical up-N-down market movemnts. As things get more extreme though, you are pulling more money off of that rocket daily in rally years like 2013 and throwing good money after bad as it drops into a hole like 2008.

Thanks, after a lot of hemming and hawing, I decided not to "set it and forget it" in either of the L2030 or L2040 funds. I didn't realize they rebalance daily. I thought it was only once per qtr, but I had it confused that they reallocate once per qtr...

so.. anyway for now I'm going to try to stick with 47C/33S/20I and stay there (unless we can somehow see a clear indication that a crash is coming) - in which case I would put everything in G but leave the contributions going into C/S/I to snap up shares at lower prices... However, who knows if "G" is really safe, when you have Lew saying they can and have in the past, suspended pension and retirement funding to avoid the debt ceiling... blah blah blah.

Has anyone been following this chart below? They are saying the Dow is right now looking like the charts looked in 1928/1929. Scary indeed. More fear mongering?

 

[coastalite]

When the time is right roll your TSP account into a traditional IRA for more flexibility and income stream. Later on do a conversion roll over from IRA into a Roth IRA for tax free income.

Hmmm, this may be a dumb question, but I thought the "G Fund" is guaranteed by the govt, and if it is, then why would a retiree want to risk rolling their nest egg from the safety of the TSP's G Fund - over to what could be considered an unknown risk in either a Traditional or converted ROTH IRA (which neither are guaranteed or FDIC insured)?

I thought that after you retire... most would probably want to keep their TSP intact and allocated to G (guaranteed cash distribution w/no risk plus LOW FEES) and a smaller % allocated into stocks - to try to beat inflation - & perhaps allow for some growth - possibly enough to help get you THROUGH retirement.

What is the advantage of converting your TSP to an IRA and then convert to a ROTH, and when is the right time to do that? Also, wouldn't we get a double whammy on taxes if we converted to a ROTH? Or, would you slowly convert a portion of it each year based on your AGI and whatever is most advantageous from a tax standpoint?

 

[Birchtree]

The advantage of a traditional IRA is the option of flexibility to invest or trade without a schedule D paperwork. Converting to a Roth IRA slowly keeps the tax payments lower and then there are no taxes on the gains. Both TSP and IRA have required minimum distributions that you can't control. The objective is to control your AGI and keep what is yours. Keeping money in the G fund during retirement is 1980s thinking - now you need to keep your assets working even during retirement. Everyone is going to become market oriented over the next several decades just to survive. Can you imagine the demand that will create - just look at the growth of this TSP board during the last several years. Once you establish an income stream you've got sustainability and security - let the capital gains flow in and out and selectively harvest a few gains for the grandkids. There is no RMD for an heir with an inherited Roth IRA. I like the fact that a growth oriented Roth with stocks can live in perpituity and a lot longer than me.

 

[coastalite]

Update: It's now mid to late 40's with about 15 years till retirement.

Current allocation/distribution of funds - as of today's IFT is:
20 G
50 C
10 S
20 I

Current contributions:
60 C
20 S
20 I

We are contributing the maximum allowable to the TSP (IRA - married filing jointly) of $18,000 for 2015.

My spouse & I are each maxing out our ROTH IRA's at Vanguard for 2015 at $5,500 each.

Total 2015 retirement contributions = $18,000 + $5,500 + $5,500 = $29,000.

Any thoughts/comments/suggestions for our long-term strategy/approach are certainly encouraged and welcomed!!!

Thank you!

 

[FogSailing]

Just wanted to complement the electric guitar on your logo. Is that a Vintage Fender Strat by chance?

Your long term strategy looks sound to me but I'm somewhat conservative in my trading. I think you are doing the right stuff. Answering that question " What are my long term financial goals is critical. Then creating the strategy to get you there has real power. Like any plan, expect lots of changes and adjustments. There are many successful traders on this forum that have expanded their horizons beyond the TSP with excellent results. Hopefully a few of them can offer you their perspective. Best of luck to you. Fifteen years will fly by...believe me.

FS

 

[coastalite]

Just wanted to complement the electric guitar on your logo. Is that a Vintage Fender Strat by chance?

Your long term strategy looks sound to me but I'm somewhat conservative in my trading. I think you are doing the right stuff. Answering that question " What are my long term financial goals is critical. Then creating the strategy to get you there has real power. Like any plan, expect lots of changes and adjustments. There are many successful traders on this forum that have expanded their horizons beyond the TSP with excellent results. Hopefully a few of them can offer you their perspective. Best of luck to you. Fifteen years will fly by...believe me.

FS

Thanks, I wish. I'm still in kind of the advanced beginner stage - maybe approaching beginning intermediate??? It's about 2 to 2.5 years of practicing a few hours here & there... I know several chords but can't do any solo stuff... kinda struggling to understand how it all works below the first 3 or 4 frets... so I didn't want to spend a ton... so I decided on a 2013 Fender Deluxe Lone Star Strat (HSS) - MIM (kind of a vintage 70's look to it - but it has a fairly nice sound to it and build qlty for their mex factory). They sell for around $600 - but I talked them down to $500 and had a $100 free gift card - so I basically got a steal at $400 out-of-pocket (lol) - the guitar looks & feels like a more expensive guitar & of course I had to splurge on a pro Fender hard case for it.

As for investing - I guess if it was easy, everyone would be doing it.

We're not really all that savvy - so we're just going to try to accumulate as much as possible & then go conservative as we get closer. Beyond that, kinda play it by ear and try to learn as much as possible. Thanks!

 

[DrDetroit]

Update: It's now mid to late 40's with about 15 years till retirement.

Current allocation/distribution of funds - as of today's IFT is:
20 G
50 C
10 S
20 I

Current contributions:
60 C
20 S
20 I

We are contributing the maximum allowable to the TSP (IRA - married filing jointly) of $18,000 for 2015.

My spouse & I are each maxing out our ROTH IRA's at Vanguard for 2015 at $5,500 each.

Total 2015 retirement contributions = $18,000 + $5,500 + $5,500 = $29,000.

Any thoughts/comments/suggestions for our long-term strategy/approach are certainly encouraged and welcomed!!!

Thank you!

I like it. I've read the thread from the beginning and you have evolved from an unsure investor, to a confident investor with a plan with some self-deprivation in the middle, lol.

I have a degree in Finance so I've always thought I should be ahead of the game, and in the dot com era, I thought I had it all figured out. Well I didn't, and probably still don't but I do follow the simple rules that always work. Dollar cost averaging, contribute as much as you can to retirement accounts, don't get emotional about market fluctuation, and have a plan.

I'm 44, and have 24 years of service with 12 as a GOV CIV. I started investing when I was 21, got a Roth the day it was released, I invested in the TSP the day it was made available to uniformed service members.

I went back and looked what I was doing early in my civilian career and I made some mistakes. I should have been contributing more (I was at 6 to 8% my first five years) and I probably should have been a little more aggressive (I had 25% in G and F combined for a a few years, because I got burned by the dot com bubble).

Right now I'm contributing the max and I have been in fairly aggressive allocations since 2007 or so. I'd say I'd averaged 85% in C/S/I since then, sometimes during that period I was closer to 90% stocks. I dialed it back this spring some and went 12% F and 8% G but my contributions are 100% stocks (45C, 35S, 20I). Every quarter I re-allocate regardless of market, and when the markets tank I stay far away from my account to avoid doing something stupid. I understand my risk tolerance and I think that's important for everyone. I you can't stand it and have to look at your account when the Dow is down 350, you need to put more in G IMO. This should not be a stressful endeavor, it should be rewarding and you have to stick to the plan.

Finally I will say that I don't like the lifecycle funds, at least for me. I recommend them to folks who just can't wrap their heads around investing, but I tell those people to go with the fund that is 10 years beyond their retirement date. I can retire in 2029 and the 2030 fund is 30%G, 5%F, 35%G, 10%S, and 20%I. That's too conservative IMO and I think the S and F funds are actually the two best funds for balancing your portfolio for age, risk tolerance, and goals. I won't be 35% in bonds until I'm 5 years away from retirement, and even in retirement I doubt I'll go below 50% stocks. U.S. markets are the best in the world and that's not changing in my lifetime, I'm not about to give away free money because I'm afraid to lose a few thousand dollars in the short-term (kiplingers for example recommends 55% stocks at retirement, 35% 10 years after retirement).
T
hat's my story, and I'm sticking to it. :laugh:

 

[DrDetroit]

I guess there is no real conversation in this forum, people seem to only come here to talk about daily strategies which is a dumb way to invest in TSP. $2.1 billion in outflows in the C, S, and I funds in June. All those people are suckers IMO.

 

[RazorCat]

I guess there is no real conversation in this forum, people seem to only come here to talk about daily strategies which is a dumb way to invest in TSP. $2.1 billion in outflows in the C, S, and I funds in June. All those people are suckers IMO.

There's plenty of discussions and direction on short term, and long term, investing on this site. You take what you want from it and move (or don't move) your money accordingly. If you're a Buy and Hold investor, then peruse the information in the various "account talk" threads or from a premium service, and use it as you see fit. There's dozens of different approaches and styles to investing on TSP. The only "suckers" are those that think other's advice, opinions, and investing strategies aren't valuable in an overall approach to investing.
Welcome to TSP.

 

[DrDetroit]

There's plenty of discussions and direction on short term, and long term, investing on this site. You take what you want from it and move (or don't move) your money accordingly. If you're a Buy and Hold investor, then peruse the information in the various "account talk" threads or from a premium service, and use it as you see fit. There's dozens of different approaches and styles to investing on TSP. The only "suckers" are those that think other's advice, opinions, and investing strategies aren't valuable in an overall approach to investing.
Welcome to TSP.

100% G Fund FTW

 

[Intrepid_Timer]

I guess there is no real conversation in this forum, people seem to only come here to talk about daily strategies which is a dumb way to invest in TSP. $2.1 billion in outflows in the C, S, and I funds in June. All those people are suckers IMO.

The only suckers here are the ones that come to a site that clearly states "friends don't let friends buy and hold" preaching to every one that should indeed buy and hold. All of a sudden now you say that you are 100% G. Does that make you a sucker like the one's that pulled their money out of C, S and I funds in June? I really don't understand..........................It's probably because I don't have a degree in finance, although what that has to do with investing or trading, I'm not quite sure.