Where to start? 26, looking at the big picture

[yehiah]

Hi Everyone,

I'm new to TSP Talk and to investing in general so I'm still trying to get my head wrapped around all of this. I'm 26 years old, and have been with the feds about 2.5 years. All my money was in the G fund until recently when I put 70% into the L2040 and 15% into F and G. I know you need to take some risk to make gains, thus the 70% in L. But I also want to have some "secure" funds. My questions are 1) Is 70% too much to have invested in an L fund- is it too risky? and 2) What is the benefit of splitting your investments between the individual C, F, I, G and S funds, rather than putting the same amount in the L which combines all of these? and 3) Is there any way to protect gains? For example, if you own 30 shares and the price of those shares goes up from $14 to $19, is it possible and/or wise to move those shares out of that fund so as to avoid losses in the event the prices drop? I hear a lot about buy and hold, but don't exactly understand how you hold. Thanks! Any feedback would be greatly appreciated!!!

 

[Boghie]

Yehiah,

The L2040 Fund is currently split up as follows (it changes – gets less aggressive - as time goes by):

G: 10%
F: 10%
C: 40%
S: 17%
I: 23%​

According to Quicken this allocation has an average return of 8% and an average standard deviation (risk) of 10%. That means that you will average a return of 8% a year – but, under normal circumstances, you can expect a return of -2% to +18% in any single year. Note: 2008 was a special year (ie. a crash). The L2040 lost 31.53% in 2008. That was a crash of almost five standard deviations!!!

Anyway, you have kinda mucked up the idea of the L funds by investing in individual funds as well. Your current allocation is (in reality):

G: 22%
F: 22%
C: 28%
S: 12%
I: 16%​

According to Quicken this allocation has an average return of 6% and an average standard deviation (risk) of 7%. That means that you will average a return of 6% a year – but, under normal circumstances, you can expect a return of -1% to +13% in any single year. In effect, you have set yourself up in something between the L2010 and L2020 – and, you are over weighted in bonds (‘F Fund’). Are you really retiring at age 36. I bet that wasn't your intent...

Anyway, bonds (those in the ‘F Fund’ seem toppy and bubbly right now. Most here are not putting 22% of their assets into the ‘F Fund’ right now – especially at 26 years old. And, to have 22% (or even 10%) of your assets sitting in cash ('G Fund') at age 26 - with 40 years of investing to go - without a reason is very detrimental to your retirement.

Personally, at 26 years old, I wouldn’t have a dime in either the G or F Funds in a normal market. And I think we are in a normal market – excepting the foreign funds (I Fund).

I would recommend two books by Ric Edelman:

‘The Truth About Money’
‘The Lies About Money’
Plus, he has a weekend radio show.​

‘The Lies About Money’ has a nice portfolio quiz that can help you set up your own allocation

As far as moving assets between funds. That is a tactic used by many here. If used aggressively and often it is called 'market timing'. If used infrequently and/or without dramatic swings (big percentage changes) it can be called allocation management. If rarely used it can be a rebalance in a buy and hold strategy. At your level of expertise I would recommend setting an allocation (maybe 100% in the L2040) and taking some time to learn the ropes of retirement investing. The 20% of L2040 sitting in bonds and cash should soften any blows while you learn how to play - kinda like a non-existant San Diego Charger running game protecting a lead in the final quarter of play.

As you read, find some folks here who seem to have a strategy you like and follow them. You can watch them on the AutoTracker. Remember, you are working with a retirement fund. You want long term and consistent gains.

 

[Steadygain]

I hear a lot about buy and hold, but don't exactly understand how you hold. Thanks! Any feedback would be greatly appreciated!!!

First -- Welcome aboard -- it's great to have you with us.

At 26 the most important thing you need to consider is the present garbage we're going through is about the worst we've ever had - period.

So this is NOT a situation that will end quickly and the Economy and Markets are NOT going to zoom and keep zooming as though nothing happened anything time soon.

In light of history - and especially in terms with how the USA (and the dollar) remain highly central to the Global Economy. All the more when considering the strength the US Corporations and Industries continue to have.

The overwhelming odds are 'This too will pass' and when the BULL takes HOLD -- all will be forgotten.

Buy and Hold - is a term to describe Birchtree -- also known as Dennis PermaBULL #1.

It is 'buying with confidence' -- and 'Holding over the long run'. It is the realization that 'High Risk' -- translates to High Gains if you HOLD and keep HOLDING during the rough times and wait until the Markets PEAK to sell at 'Retirement'.

For you it would be knowing that over the long run the Markets will continue to Climb and in the years to come you Dollar Cost Average all the way through.

Most of us can't do it -- we cave in to each others fear -- but Birch will show you how to run in front of a Train and enjoy it. He will supply the 'sticky pants' to keep you in place. In the end you'll be so rich others will be in awe ---- but you get use to that after awhile.

 

[Boghie]

I second Steady!!!

Birch convinced me to put as much of my salary into TSP equity funds (C/S/I) as I could afford when share prices were in single digits. That was in the middle of the 57% market crash. A yummy accumulation of cheap equity shares.

If I am reasonably careful I will retain all those equity shares and have a very nice retirement.

In my travels I really enjoyed Istanbul, Munich, Paris, Venice, Rome, and Amsterdam. Birch’s yak in November 2008 will allow me to enjoy an outdoor coffee in Istanbul during my dotage. That Turkish coffee is strong!!! And, by the way, Turkish women are stunning!!! As are Italian women!!! Germans – not so much:embarrest:

 

[Steadygain]

Germans – not so much :embarrest:

More than likely you simply timed it wrong -- which is very unfortunate.

There are tons of German girls that would stun you - send your hormores flying -- B/P up and heart racing.

What totally floors me -- and I'm serious about this -- when I go to Walmart - or some store (any store) - or drive through some dinky town - MANY TIMES - there will be woman that are way beyond the super models you see walking down the run ways.

So the 'Stunning Women' are all over the place - Fairfax Country and Utah and almost every place in between.

Anyway -- I'm thilled for ya -- but 'Friends don't let friends...'

 

[Boghie]

Steady, right you are...

But I'm just trying to get a 26 year old excited enough to invest over the long haul. Just think, a mere $5K inflation adjusted (including the match) will net this chap over $1.7 million at 8%. Yowser. I have to contribute twice that and make 9.5% to match him. And, we know that can be difficult.

I sure wish I had a site like this - or listened to the financial shows - at age 26. I waited till I was 32 to start learning this stuff. This chap has years on me. He will out 'bling' me at the Turkish coffee shop:cheesy:. Then again I am a happily married man and expect to be so in my dotage.

However, I don't think he is ready to swing. So something slow and steady is probably good to go - especially with those paycheck contributions.

 

[PessOptimist]

Hello yehiah,

Welcome to the zoo.

All the critters here mean well but sometimes don't IMHO answer basic questions very well.

Buy and hold simply means once you buy a share, you never sell it. Or almost never. Or not for a very long time.

For example through your payday contribution or an Interfund Transfer (IFT) you buy 200 shares of C fund at yesterday's closing price of $14.4627. You keep these 200 shares of C fund until you are ready to take money out of your TSP at retirement in 30 whatever years. The hope is that these shares will be worth a lot more in 30 years. You keep them for richer, poorer, better, worse etc. Even if they drop to say $8 per share. The idea is that in the long term they might become worth $30 or even $40.

Moving those 30 shares you ask about at $19 would preserve your profit. The question is which fund to transfer them to. The only fund guaranteed not to decrease in value is the G fund. Right now it earns you $.0008 per share per day.

If the fund you move them out of keeps going up, you no longer own shares of that fund and make no more profit on your money. If you move the money to a fund other than G, you may have a profit or loss depending on the future value of your shares in the fund you moved your money to.

I hope this helps. If you have not all ready done so, go to www.tsp.gov and click on Investment Funds>Fund Management and read about the various funds. Then post in the Member Introductions thread. Ask any question you have. That will keep the answers in one place for you to find.

The fact you are investing at your age is great. If you can afford it, contribute at least 5% so you get the agency matching funds.

It's not really a zoo. Maybe. Lot's of personalities here and lot's of opinions. Specific advice is not the way it usually works. Nor should it.

 

[tsptalk]

Welcome yehiah!

Looks like our members have been busy answering your questions.

Thanks everyone!

 

[yehiah]

Wow! Yeah, I have a lot to learn. Thank you all for your comments