Understanding Contribution/IFT's

[catak]

What is the direct correlation of money within the contribution allocation and an IFT transfer? I understand the rule of only two IFT’s per month. Is it best practice when making an IFT to match those percentages in a contribution allocation? i.e. If I have no new money in the F fund (contribution allocation) and then decide to make an IFT transfer in the F fund there would be no money to invest. Correct? Thanks for the help.

 

[userque]

What is the direct correlation of money within the contribution allocation and an IFT transfer?

Not sure I understand exactly what you are asking. That said, and since you've asked this question a few times, I'll try to be more detailed than usual and may be telling you some things you already know :/

There are TSP funds, several; three are the G, C, and S, for example. A new employee decides to contribute money to one or more of these funds. S/he sets up their TSP account and tells TSP into which fund(s) they want the money from their paycheck to 'go to.' They do this via a CONTRIBUTION ALLOCATION. They can allocate, for example, 50% into G, and 50% into C.

After a few paychecks, they decide to put all (100%) of their above mentioned savings (TSP) into the G fund. They do an INTERFUND TRANSFER. (They can spit it among any of the funds in any proportion.) Now all of their money is in the G fund UNTIL payday.

After payday, whatever dollar amount they have coming out of the paycheck for TSP: 50% will go into G, and 50% into C BECAUSE they ONLY did an IFT in this example and DIDN'T change their CONTRIBUTION ALLOCATION. Hope that helps to clear that up for you if it wasn't already, if not...let us know.

I understand the rule of only two IFT’s per month.

Generally. (Three, if the third one is to the G fund)

Is it best practice when making an IFT to match those percentages in a contribution allocation?

Generally, but it depends.

i.e. If I have no new money in the F fund (contribution allocation) and then decide to make an IFT transfer in the F fund there would be no money to invest. Correct? Thanks for the help.

With IFT, you simply decide how to divide up the money from all the funds. You don't have to specify from which fund the money originates, TSP figures all that out. For example, You can do an IFT specifying that you want 25% each into the C, S, I, and F funds. Wherever you money currently is, TSP will do the math and redistribute it so that it matches the percentages you specify. If none was in the F fund, they will transfer some into it. If all of your money was already in the F fund, they will transfer the correct amount out.

Hope this helps,
Good luck!

 

[catak]

Thanks for trying to clear up my confusion. Maybe this will clear it up some. Do most people leave the contribution area alone and only conducte IFR's? Does my percentages in my contribution affect the overall outcome of how I make money via IFT's. What would be a good percentage in contribution area? Sorry if this doesn't make sense.

 

[k0nkuzh0n]

I'm having Deja Vu... I swear I already answered this one :laugh:

 

[RealMoneyIssues]

Generally. (Three, if the third one is to the G fund)

I just did my 4th...

http://www.tsptalk.com/mb/members-account-talk/7825-1%-ift-option-read-only.html#post244380

 

[userque]

Not sure what most are doing. But I think a good strategy for you to start with would be to have 100% of your contributions go into the G fund; then just move your money around with IFTs--at least until you get the hang of things. It's not a big deal really.

"Good" depends. the short answer would be to start with 5% of your paycheck, if you can afford that--at least until you get the hang of things. (This last answer assumes you are asking what percentage of your income is 'good' to put into the TSP.)

Good Luck!

 

[catak]

That makes more sense! My understanding was to put more of my money into the funds that have more of a return via both the contribution and IFT. So, it doesn't matter where I allocate my percentages in contribution, but make the changes via IFT to adjust with the market.

 

[userque]

I just did my 4th...

http://www.tsptalk.com/mb/members-account-talk/7825-1%-ift-option-read-only.html#post244380

Thanks. I know. Just trying to keep is simple and basic

 

[RealMoneyIssues]

Thanks. I know. Just trying to keep is simple and basic

Oh, sorry

 

[userque]

That makes more sense! My understanding was to put more of my money into the funds that have more of a return via both the contribution and IFT. So, it doesn't matter where I allocate my percentages in contribution, but make the changes via IFT to adjust with the market.

Yup!

 

[catak]

It's just like my TrowePrice Roth IRA account. I contribute my funds to my PrimeReserve and then buy different mutual funds using my Prime. So, we can look at the contribution as one big umbrella

 

[Scout333]

That makes more sense! My understanding was to put more of my money into the funds that have more of a return via both the contribution and IFT. So, it doesn't matter where I allocate my percentages in contribution, but make the changes via IFT to adjust with the market.

Now you're getting it! Not to confuse things but the contribution allocation can also be used as a tool to dollar cost average into the various funds without using an IFT since you are limited in the number that you have each month. For example, if you have 100% of your funds in the F Fund and you are generally happy with that but want to diversify into C,S, and/or I you can change your contribution allocation to put New money from your paycheck 30% C, 30% S, and 40% I.

 

[Boghie]

Let me complicate things a bit - because that is what I do

Normally, send your paycheck contributions to C/S/I or chosen L Fund. That way your new assets start working for you right away. When the equity market funds are dropping (as they are now) contribute more. When they are rising still contribute to C/S/I/L. When they are toppy you might want to start contributing to G/F. Kinda pointless if you have a good chunk of mullah in your account, but...

To me, there is no intrinsic value in sending new money to the 'G Fund'. Take last year as an example. Say you are throwing $300 into TSP (including match) each pay period. The market grinds up by 2% a month or so. You sit that money in the 'G Fund' till you have $5,000 and then invest it in F/C/S/I. That scenario leaves your first contribution in a cash account for 16 pay periods earning nada. Zip, zilch, nada for seven or eight months. What a waste. That $300 would have been worth about $350 by the time you made your IFT into the equity funds. Now last year was a bit of an aberration - but the thought still holds

But, I can hear Amoeba squeaking in the back. What would have happened in 2008 if you 'invested' your $300 contributions to C/S/I. You would be broke, broke, broke!!! Market crash. The end of the world. You would be fighting the dogs at the feeding bowl - but we know you would be the Big Dog so all would be alright. Anyway, here goes. You put that $300 into G from October 2007 on. In April 2009 you got yourself $5,000 to invest at almost the bottom of the market. The 'C Fund' collapsed 57%. Had you been putting the cash in the 'C Fund' you would probably have about $3,500 - $3,750 (the math would be nasty and time consuming - each $300 contribution would have been cut by a smaller percentage as the pay periods go by). Let us use $3,500. You save $1,500 in retirement savings - negligible when talking retirement. But, what exactly isn't negligible is the fact that in April of 2009 you would be sitting with $5,000 in cash via contributions, probably all cash in the account, and sweating the panic. If you are not very disciplined you will not IFT everything to the equity funds in April. You will sweat in a dark corner saving electricity and eating macaroni. Tell me that isn't the truth. Show me on AutoTracker all those who made IFTs in March and April 2009 to the equity funds. I'm not doing all that work, but by looking at the final tallies I can tell you that out of those who made 20%+ in 2009 (a year the C Fund grew by 27%) twenty of the seventy money makers made no trades - they rode it down and rode it back up. Fifty made trades and only forty three made more money that the 'C Fund'. The other two hundred and eighteen folks DID NOT buy low. A lot of them were sweating in a dark room. Are you one of the Warren Buffet's around here?

I'm not saying that you - or anyone around here - cannot do a bit of market timing or allocation management, but I am making a point that playing with contributions is kinda pointless. Send all contributions to C/S/I, play with the account balance via IFTs. You want to take every opportunity available for buying the 'C Fund' at $7 bucks you possibly can. Who cares about $1,500 one way or the other when your retirement account should be in the seven figures in your golden years. More important than the $1,500 bucks is time in the market. Miss years of equity growth and you had better not own a large dog because they like to eat to - maybe you

 

[burrocrat]

You will sweat in a dark corner saving electricity and eating macaroni. Tell me that isn't the truth.

dude, i sit sweating in a corner with the lights off eating macaroni on a good day. why do you gotta make it sound so, so seedy? c'mon man, everybody does it, it's not unusual, just admit it, you guys do it too, right? right?

 

[RealMoneyIssues]

I had to look again and make sure Birchtree didn't write that, but then again, he doesn't write long posts like that very often

Fascinating logic...

 

[userque]

Let me complicate things a bit - because that is what I do

Normally, send your paycheck contributions to C/S/I or chosen L Fund. That way your new assets start working for you right away. When the equity market funds are dropping (as they are now) contribute more. When they are rising still contribute to C/S/I/L. When they are toppy you might want to start contributing to G/F. Kinda pointless if you have a good chunk of mullah in your account, but...

To me, there is no intrinsic value in sending new money to the 'G Fund'. Take last year as an example. Say you are throwing $300 into TSP (including match) each pay period. The market grinds up by 2% a month or so. You sit that money in the 'G Fund' till you have $5,000 and then invest it in F/C/S/I. That scenario leaves your first contribution in a cash account for 16 pay periods earning nada. Zip, zilch, nada for seven or eight months. What a waste. That $300 would have been worth about $350 by the time you made your IFT into the equity funds. Now last year was a bit of an aberration - but the thought still holds

But, I can hear Amoeba squeaking in the back. What would have happened in 2008 if you 'invested' your $300 contributions to C/S/I. You would be broke, broke, broke!!! Market crash. The end of the world. You would be fighting the dogs at the feeding bowl - but we know you would be the Big Dog so all would be alright. Anyway, here goes. You put that $300 into G from October 2007 on. In April 2009 you got yourself $5,000 to invest at almost the bottom of the market. The 'C Fund' collapsed 57%. Had you been putting the cash in the 'C Fund' you would probably have about $3,500 - $3,750 (the math would be nasty and time consuming - each $300 contribution would have been cut by a smaller percentage as the pay periods go by). Let us use $3,500. You save $1,500 in retirement savings - negligible when talking retirement. But, what exactly isn't negligible is the fact that in April of 2009 you would be sitting with $5,000 in cash via contributions, probably all cash in the account, and sweating the panic. If you are not very disciplined you will not IFT everything to the equity funds in April. You will sweat in a dark corner saving electricity and eating macaroni. Tell me that isn't the truth. Show me on AutoTracker all those who made IFTs in March and April 2009 to the equity funds. I'm not doing all that work, but by looking at the final tallies I can tell you that out of those who made 20%+ in 2009 (a year the C Fund grew by 27%) twenty of the seventy money makers made no trades - they rode it down and rode it back up. Fifty made trades and only forty three made more money that the 'C Fund'. The other two hundred and eighteen folks DID NOT buy low. A lot of them were sweating in a dark room. Are you one of the Warren Buffet's around here?

I'm not saying that you - or anyone around here - cannot do a bit of market timing or allocation management, but I am making a point that playing with contributions is kinda pointless. Send all contributions to C/S/I, play with the account balance via IFTs. You want to take every opportunity available for buying the 'C Fund' at $7 bucks you possibly can. Who cares about $1,500 one way or the other when your retirement account should be in the seven figures in your golden years. More important than the $1,500 bucks is time in the market. Miss years of equity growth and you had better not own a large dog because they like to eat to - maybe you

I'm glad the OP is finally getting more attention.

But to be clearer(?) regarding my allocation suggestions to them...

The OP seems to be very new to TSP. They seem to be eager to get started trading. With those assumptions in mind, along with the nature and number of the OP's previous (unanswered) posts, and with a desire to not ask the many questions needed to more properly assess the situation; I further assumed prior to formulating my response:

• That once the OP started working with the TSP website, they would 'catch on,' as we all did, and see how easy it really is to play with the allocations;
• That, like most learning processes, it is better to start with the basics: crawling before walking; addition and subtraction before multiplication and division before algebra before calculus before quantum mechanics before <1% IFT's;
• That the OP wouldn't let $5000 accumulate in the G fund between trades; and,
• That too much too soon would not be too helpful for that particular OP.

As the OP left a lot to the imagination in their posts, maybe we'll never know. But in the end, they did seem to finally say to the effect of, if not in these exact words, 'I get it!'

 

[k0nkuzh0n]

This is what I had said the 1st time this guy created this thread:

I personally leave my contribution allocation alone because I'm fairly active with IFTs. Someone who does only a handful of IFTs a year would probably want their contributions allocation to match where they want their money.

I have mine set to put 1% into each of the L funds, then divide up the rest almost equally for the rest of the funds.

The reason I do this is because when I'm out of IFTs, it actually makes a difference with <1% IFTs if you know what you're doing.

 

[Boghie]

Good points all. Especially userque.

I did give forward warning that I was about to go all complicated though. To be fair:toung:

And, I have had my share of macaroni on - shall we say - unlit nights