Very Basicon 401/TSP question

[bob_lafrentz]

Hi all,

I just found this site yesterday when I was trying to find an answer to a TSP question. Awesome site!!

Anyways, this is real basic, but I'm new to this stuff. So, how exactly does the TSP work? More specifically, is there a compounding interest function of the TSP?

When I get my statements, it shows how much money is contributed (both mine and the agency's contribution) and it shows how much a "share" is worth during that time period, and it shows how many shares were purchased with the total contribution. With this information, I assume that the only things that matter then are the purchase price and the sell price. Is this correct?

These statements also state how much each fund has gone up or gone down. But, this seems irrelevant if I am purchasing and selling "shares."

As a comparison, a savings acount (something I am familiar with) has an interest rate that your principal earns money on. When an interest payment is made each month, your principal and the interest can earn more interest. This is what I understand as compound interest.

If anyone affirm my thoughts or correct me, I would greatly appreciate it. Thanks.

 

[Show-me]

G fund is your savings account.

F fund is a bond fund subject to market fluctuation.

C, S, and I are stock funds. C = S&P 500 or large cap. stocks. S= Wilshire 4500 or small cap. stock. I = International stock fund, meaning overseas stocks. Another term would be large companies and small companies.

The G is your saving fund and you can't lose money. While the F, C, S, and I are subject to the market movements and can make money or lose money day to day.

Welcome to the MB and good question. Hope this helps.

 

[bob_lafrentz]

So what I hear you saying is that I am right, there is no compounding interest function in say the C, S, or I funds? Its just like buying any other stock?

So, to take this a little deeper... From what I understand, the historical average of the S&P 500 is something like 8%. With this information, and knowing that the C Fund is a conglameration of many stocks, why doesn't all young people just put all their contributions in this fund and then simply put it in the G-Fund sometime during their last 5 years of work (when the market is high).

I understand diversity, but when your young and have a lot of time to watch the market, this seems pretty solid. Why would you try to beat 8% with increased risk?

 

[tsptalk]

why doesn't all young people just put all their contributions in this fund [C] and then simply put it in the G-Fund sometime during their last 5 years of work (when the market is high).

Because friends don't let friends buy and hold.

That is one option, if you don't mind the rollercoaster. The S and I have historcally done better, but those rollercoasters are even more wild.

I don't know if you ahve had a chance to view the Ebbchart system. It is up 43% since ebbnflow started posting it here. Now none of us can settle for 8%.

Welcome to the site!