30 yrs to go, buy and hold new guy

[get2will]

I just got on board TSP. Somewhere on this site it says "Diversification is for investors who don't want to watch their accounts." Thats me! I have 30-35 years of dollar cost averaging until retirment. I'm investingagressively in C, S, & I.

Looking at all these postings, I've noticed two trends.

One is allocatealmost evenly between equities: 33%C, 33%S, 33%I (I have 35, 35, & 30)

or

Split them (give and take) 60%C, 25%S, and 15%I

What are their relative advantages/disadvantages, or are both crazy?

[Rolo]

Well, you have large caps, small caps, and international.

If you downplay international, you are ruling out MOST of your world-wide investment opportunities.

What you examine is each fund's past performance over a 30-year period and it's volatility. Use those to determine how much risk/reward suits you.

Being the black-and-white thinker that I am, at a glance, it is difficult to not want to just put everything in the biggest long-term gainer of all, begging the question: Which one will be worth the most in 30 years?

[rokid]

get2will,

Welcome. Now there aretwo of us buy-and-holders on the board!

Historically, the S & I funds are more volatile than the C Fund, i.e. more risky. However, they have also delivered higher returns, i.e. more risk =s more return (hopefully).

Unfortunately, the S Fund has a high correlation with the C Fund. Therefore, it doesn't provide very good diversification relative to C. On the other hand, the I fund has a relatively low correlation with both the C & the S. Therefore, it provides nice diversification for the other two.

Since the C & S funds represent the entire domestic stock market, many people, set the C & S percentages based on their relative market capitalization, i.e. approximately, 75% C and 25% S (you might want to check these percentages).However, if you want to turn up the risk (and the potential return), you can over weight S (but not eliminate C).

Although foreign stocks represent about 50% of the world market capitalization, most experts wouldn't recommend a 50% allocation. Most recommend 25-30% foreign.

Therefore, a standard domestic market capitalization strategy, with a relatively high dose of foreign stocks would give you:

53% C; 17% S; and 30% S.

Incidentally, as a long term buy-and-holder, you may want to consider some bonds. Theynon-correlate with domestic stocks, i.e. provide good diversification, and reduce portfolio volatility.

[Mike]

Three. :P

[tsptalk]

Et tu, Mike?

[Rolo]

tsptalk wrote: Et tu, Mike?
hahahaha

Don't forget Azanon! (Az...you still around?)

[Mike]

Tom and others, I simply cannot do a good job of being "active" in the trading realm at this time. My responsibilities at work have increased, and my hours continue to include substantial amounts of overtime. I simply don't have the time or energy to actively try to follow and time the market.

Hence, I'm on the 50 C / 30 S / 20 I automatic allocation. I'll tweak this periodically, depending on general trends.

Mike wrote: Three. :PHey http://i3.photobucket.com/albums/y72/W_W/night_shift_md_clr.gif----
http://i3.photobucket.com/albums/y72/W_W/finally.gif
I think I want to follow you. Can you show me the way?http://i3.photobucket.com/albums/y72/W_W/blind_mouse_md_clr.gifhttp://i3.photobucket.com/albums/y72/W_W/WW.gif


Rolo informed me that my pics weren't coming through so I re-did them. Please anyone let me know if these aren't coming through. Thanks W_W

[Mike]

Exactly where would you like to follow me? :l

[shak23]

Looks like I'm a Buy & Holder too... Currently 40C / 40S / 20 I. 30yrs to retirement, unless the returns are riduculous and I can buy my private island!

Problem is... I feel like a day trader. I'm always reading everybody's comments, philosophies, predictions, and allocation changes. I'm updating my Excel spreadsheet almost daily... and I get worked up over daily movements up & down in the markets. Add to that, that I'm not business or market savvy; and I'm trying to learn from listnening & reading & observing.

All of this, and I'm new to Fed/TSP- started in Nov 2004!!!

Maybe I need to learn some relaxation techniques... or just stop looking at the markets and re-eval my distribution percentage once or twice a year!

Any suggestions? A scotch nightly does wonders.

By the way, how do I upload a personal image to "identify myself"?

[Pete1]

Buy and holder number X :)

Personally, splitting equally between the 3 funds is a perfectly reasonable strategy over a 30 year time horizon (contribution allocations also equally split equally between the 3 funds). Rebalance annually to 1/3rd in each and forget about it.

However (I always have to throw in a fixed income argument), I would highly recommend a 75/25 allocation in your case (75 stocks split equally between the 3 funds, and 25% fixed incomeG/F, I prefer G). Why? Historically,one third of therisk as measured by standard deviation is eliminated while sacrificing 1/7th of the return of 100% stocks (75/25 historically nets 92% of the return of an all equity portfolio). Historically, maximum one year loss drops from around 50% to around 30%. Recommend that you read William Bernstein's "The intelligent Asset Allocator" and "The Four Pillars of Investing" both must reads for buy and holders. Also, Larry Swedroe's 2005 edition of "The Only Investment Guide You Will Ever Need." Swedroe's book is particularly germane to TSPers because he uses many risk/return examples of portfolios split equallybetween the 3 stock asset classesavailable to us. He uses a 60/40 allocation to demonstrate.

[Dave M]

<<I'm new to Fed/TSP- started in Nov 2004>>

Don't you have to wait six months before you can contribute to the TSP? Or maybe you are military and things are different over there?

I definitely agree with the above about not comitting your entire portfolio to the stock funds. I bounce between40% and 60%. Last year with 40% in the C and S funds (60G), I about tripled my return over what it would've beenwith 100G. This year I was shooting for a 60% investment but recent events -- the terrible 1st quarter just ended -- have caused me to retreat for now.

What matters most is that you get your kitty started by maximizing your contributions. Take a few years, get the balance up there while holding risk to the minimum, then look for the right opportunity. Easily said, hard to do!

Dave

[Mike]

The worst thing a young worker can do is play it too conservatively. Losing 20% of your nest egg three years into federal service is not the same as losing that much of it 25 or 30 years in. When you're young, it is essential to be aggressive.

[Pete1]

Mike, agreed - putting away as much as you can early is more important than returnsto investors just starting out. A 50% loss from a $50K account with dollar cost averaging is not nearly so painful as a 50% loss from a $1M account where contributions cannot quickly offsetlosses.

[Spaf]

Buy and Hold

Attached is a decade chart of the DJIA.

Prior to 2000 a buy and hold strategy had considerable merit. The market was rather steady in a upward trending movement.....

However, after 2000 the market changed. It has becomemore like a roller-coaster. Simple returns (excluding dividends) can vary depending on when investments were made and what the current or future value may be.

One could buy high and sell low on retirement. Or, conversely buy low and sell high. It has become dependent on the time frame, the time frameof when one bought and when one sold.

Thus we now have the reality of the position investor. To enter and exit positions in the market based on good and bad trends. Developing strategies for when to buy and sell stocks. In reality, how not to lose $.

Rgds, and be careful! :cool: Spaf

[Pete1]

Spaf, respectfully disagree. Bear markets happen. 73-74 and the Great Depression are previous examples. 2000-2002 was not a new thing. Also, using the DJIA as a benchmark for thoseholding a diversified mix of large, small, value, international, REITS, and fixed income - say a 60/40 mix of equity to fixed income, just does not work. For those holding theDJIA and only the DJIA, your chart makes more sense.

[rokid]

Spaf wrote:
Thus we now have the reality of the position investor. To enter and exit positions in the market based on good and bad trends. Developing strategies for when to buy and sell stocks.


Anyone who can time the market will make a lot of money. However, research indicates that the overwhelming majority of people, including professionals, can't do it.They miss-time the market and lose money. In other words, they buy high and sell low.

However, I'll keep monitoring the board to see if anyone proves the research wrong and beats a "buy and hold with rebalancing strategy"on aconsistent basis.

I also agree with Pete. 2000-2004 is just a market cycle - nothing new. The 5 year period 1973-1977 had a greater variability of annual returns, i.e. more roller coastering.In fact, the 2000-2004 period is only 3% (20% vs. 17%) more volatile than the entire period 1970-2004.

[Dave M]

There is no 1 answer, of course. That's why we're all here!

The risk/reward equation is illuminating. If the market goes up 10% on the year and you are 40% in the G-fund which pays 5%, you net (.4x5 + .6x10) = 8%. If the market goes down 10%, you net (.4x5 - .6x10) = -4%. You get 80%of the potential gain but avoid60% of the potential loss.

If 60G then it works out to (.6x5 + .4x10) = 7%; or (.6x5 - .4x10) = -1%. You get 70% of the gain and avoid 90% of the loss.

60G is very attractive late in one's TSP-career, as am I.

Dave

[Spaf]

Dave M wrote:
60G is very attractive late in one's TSP-career, as am I.

Dave


Looks good to me! :^ Rgds Spaf

[virgosvirgo]

I thought I'd toss my own hat in the ring and out myself.Â*/mb/images/emoticons/big_grin.gifÂ*I'm 32 and have been with the TSP for only 4 years, so obviously I want to be pretty aggressive. Obviously the gains in the past few days have been quite heartening! I'm currently putting in 5% to get my full agency match, and putting in another 5% into a Roth IRA. I'm currently in for 50C, 30S, 20I.I've been buying and holding so far and can't really complain about that. Human nature being what it is though, I wonder sometimes if either a different buy-and-hold allocation or more of a short-term strategy would be appropriate for my TSP account.I'm angling for early retirement, of course! I'll be eligible to retire at 58, so that gives me a good 26 years in TSP if all goes well. I look forward to reading all the gems of insight from you!

[Birchtree]

Sometimes I just can't help myself - you will be getting some advise from a contrarian bull - so take it with a grain of salt.

You present strategy is fine - but it can be fine tuned. Next year you will be allowed to put away $15,000 plus matching. Over 26 years that comes to over $390,000. There will be times when it will be beneficial to abandon the buy and hold approach. My suggestion for today would be more aggressive - think about allocating 75% C fund and 25% I fund. The S fund will continue to grow but you will be overpaying and thus collecting fewer shares. Stick with the quality of the C fund while it is still relatively undervalued - it will eventually become the outperformer in my opinion. Keep your contributions set to match your allocations. When and if you do a transfer leave your contribution allocations unchanged and dollar cost automatically on the downside. When the funds are retreating you will be going against the grain and will be buying more shares as the get cheaper - you will of course be hurting yourself because everytime you buy you contribute to a loss. But over time you may form the conclusion that you (like many others) enjoy pain. When you determine the bottom has finally arrived it will be time to transfer the bulk of your money back into the funds - and ride back to the next top - and dollar cost averaging is still in effect now to the upside. All you have to do is figure out when to transfer - stay tuned.

I concur with Birch. With so much time to contirbute, you will do well. I only have 2 years to retirement and I am still fairly aggresive.

However, I do like the S fund but I have been with it since the start so over the long run I have done fairly well.

Ron

[Sr]

On being aggressive while young.it isso but there is another school of thought andthat relates to compounding magic. The money that compounds the longest gain momentum over the years and over a 40 year period, the money gain by the portfolio over the last 10 years of this period exceeds all the money added for the 1st 30 years!. That being so, one should be careful not to lose money and worry less about making money on the contributions. You are playing the odds of making the money you contributed being there to give you that lift off during the last 10 years to your retirement. Bottom line, better to settle for 6% than 8% return even while you are young if that will prevent losing money.

[Birchtree]

Sr,

Giving up gains is usually a temporary phenomena in the midst of a bull market- Ron made $20K in a quarter, that could be $80K in a year. There is no compounding that can touch that type of gain. And the only way to achieve those healthy gains is to have enough power (money) in the account to make it work. I've been sitting in the wall flower C fund and have currently made $.68 which equates to a little over $20K for me also. I dearly plan to make a great deal more before I'm done riding on this train. No compounding for me - give me silver and more silver. Surprisingly there are probably multitudes of participants in TSP with the same level of power at their beck and call if they choose to get with the program. Going forward it will take even less timeto to accumulate $400,000 and the opportunity is there for much more with good investment strategies. This site will allow both young and salty dogs to learn and earn. What an opportunity with this bull market starting to kick up some dust- have some fear, but just ignore the gut momentarily and get invested. You have to be in to WIN. That does not mean whip inflation now - inflation is tamed.

Dennis

[Dave M]

My latest brain-storm:the single most important variable under our control is the raw number of shares we posess at the time we cash out. Whatever the share price is, it will be multipied by the number of shares.

The easy way to accumulate shares is through steady purchase over time. If we maximize our contributions weacquire the most shares. On this basis we wouldnever sell, only ever buy and hold.

Dave

[Birchtree]

DaveM,

You are correct in your assumptions of accumulating shares over time - that's the beauty of dollar cost averaging. The problems develope when you have gained enough shares that they will hurt you when the market decides to go into another bear phase - I'm talking in the neighborhood of 20000 - 40000 shares. When one eventually gets to this power level it becomes prudent to try and side step any indepth bear markets. That is going to be my dilemma when we start getting close to another top - could be three years away. But I plan to be constantly vigilant for any signals that we are heading for more than a normal market correction. Taking money out on the upside is very difficult - you still have reserve - I will at some point start to rebuild mine - again may be three years from now - long term strategy.