L-Funds the way to go?

[biggdog1]

I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.

[TiCKed]

I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.

It's a well worn adage that "buy and hold" of a well diversified portfolio is the best way to go for the majority of people....(myself included). I'm sure you've heard that most actively managed mutual funds fail to out-perform index funds?

That said, there are some smart people here who put a lot of time and effort into doing REAL analysis of trends and history. They can, (and have) out performed some of the commonly used allocations, including the L funds. As long as you go into it knowing that you MIGHT fail in the endeavor, and as long as you enjoy the pursuit, I don't see anything wrong with the attempt!

I personally don't like the allocations in the L funds, so I built my own...and left a little lee-way for fun, and potential profit. ;) Right now, I'm slightly ahead of L40, more by accident than anything else. But the L funds are the perfect "hands off" solution for people who just don't want to think about their TSP account.

I think the lesson is important, though. Playing games isn't the right thing to do with your TSP account...but thoughtful analysis and playing the percentages isn't a mistake if understand the drawbacks, and if you enjoy it.

Tom

[biggdog1]

Tom, I agree. I also prefer dabbling with my own money. I was only pointing out when it looks as though the market sours, it may be a possible investment to use if you can't watch daily. I'm sure most of us got caught with our pants down this week and it was strange that "those L-Funds" done that well. We all should have taken notice when the Nicky took its hits earlier.

[rokid]

I have just noticed from Tom's new spreadsheet for 06 that if you had invested in the L-Funds this would be your return for this year to date:

L40 1.71% How many did this good the last two weeks?
L30 1.49% Or this?
L20 1.31% Huh!
L10 1.07% Possibly!
LINC 0.59% More likely!

Makes you wonder if the TSP gurus might be right.
Good call! I just crunched the 2006 TSP Tracker numbers. The average return was .61%. The median return was .66%. The L40 return beat 69% of the TSPers. The LINC return beat 49%.

[Mike]

For once, I'm on the right side of the comparison. :p

[Cortez]

My YTD return is better than the L Funds. 60C 40S until 1/12 close and 100 G since. 3.70%. I probably will end up tanking to negative by Feb 1 for putting this in writing. Knock on wood. Not gonna try catching any knives on C, S or I in the next few days.

[biggdog1]

An update for the L-Funds to date:
L-40 3.77
L-30 3.33
L-20 2.92
L-10 2.22
L-Inc 1.10

For those that don't want to play. YTD I'm setting 2.07%.

[saturneptune]

Retirement is 2 or so years away. I am in L2010 100%. It is very difficult for me to stay in the G fund. With all the negative comments about the future of the C, S and I fund, I am beginning to wonder if I am doing the right thing.
Any thoughts appreciated.

[bkrownd]

I'm sure you've heard that most actively managed mutual funds fail to out-perform index funds?


One thing I always wonder when hearing this comment is that actively managed mutual funds usually target specific market segments or investment strategies. They're not usually intended to perform well in all market conditions at all times, but rather to follow a specific segment, without "style drift". You're supposed to buy and sell them as conditions favor or disfavor the fund's strategy. Comparing a targeted fund (intended as a variable component of a flexible or speculative portfolio) with an index fund (intended as a permanent base of a fixed buy-and-hold portfolio) doesn't seem to make much sense.

I think the L funds are fine, and IMO should be the default TSP investment for newbies. However I don't use them myself since I have a lot of my investments outside of TSP. When I rebalance my total portfolio I emphasize the strongest funds offered by each company/plan.

[Pete1]

Saturneptune,

Negative comments about C, S, I basically equate to a bear market mentality. So, are we in a bear or bull market? Nobody really knows. Members can speculate about where stocks and bonds are headed but they do not know what the market will do tomorrow, this year, or even the next 5 years. How can you best position your investments for the near term and the long term? I have long advocated that members hold a balanced portfolio of stocks and bonds. By holding one of the L funds, you have achieved this objective. If you are uncomfortable with the potential of a 20%loss this year, the 50/50 mix of L2010 may be too aggressive for you. Consider L income instead - the maximum loss for the 20/80 mix of L income is around 5%. If you cannot tolerate any loss, stick with the G fund. Anyone holding 100% equities should be prepared for a 50% loss in any given year. Of course, most bail out before that and never find the right time to get back in. Holders of balanced portfolios avoid this trap by staying invested at a level of risk that they are comfortable with. See "The Intelligent Asset Allocator" by William Bernstein for very good, very practical asset allocation advice. Also, Rick Ferri's new book "All About Asset Allocation."

[biggdog1]

Once again the market kicks our butt Thursday and Friday. The week only had one up day for me. L-Fund YTD update:
L-40 2.74%
L-30 2.41%
L-20 2.21%
L-10 1.68%
LInc 0.84%

To date I'm setting 1.39% YTD !

[rokid]

SaturnNeptune,

Based on historical returns, the L 2010 Fund should provide an average return of 8.4% with a standard deviation of 8.4%. Therefore, statistically, 95% of the time, the L Fund return should fall between -8.4% and +25.2%. Over ten years, that works out to a +124% return.

On the other hand, historically, the G Fund has provided an average return of 5.75% a year with a standard deviation of 1.09%. Therefore, statistically, 95% of the time, the G Fund return should fall between +3.57% and +7.93%. Over ten years, that works out to +75% return.

Finally, inflation has, historically, averaged 3% or +34% over a ten year period.

There's risk no matter what you do.

[saturneptune]

thanks for the replys

[Pete1]

Saturneptune:

First, I would recommend that you go to tsp.gov and read the L fund information sheet and play around with the slide rule showing how the asset allocation becomes more conservative over time. The fact sheet indicates that if you will withdraw funds sooner than 2008, go with L income. If you will withdraw funds from 2008-2014, go with L2010. The fact sheet indicates the return assumption for L2010 at around 6.4% with a standard deviation of around 9.5%. It indcates the L income return assumption at around 5.75% with a standard deviation of around 4.5%. You sound like you will be withdrawing funds after 2008 and so, L2010 appears to be the right choice. However, your first post sounded somewhat cautious and worried about L2010. The L funds have built in risk reduction in that they are rebalanced daily and they become more coservative each quarter. Here is what this means for L2010 in terms of how much stock holdings it will hold:

October 2006 - 42.50% stocks
10/2007 - 36.50% stocks
10/2008 - 30.50% stocks
10/2009 - 24.50% stocks
10/2010 - 20 stocks

The standard deviation and return assumptions for L2010 are headed toward L income and are changing each quarter. They are literally, a moving target and will become more conservative. If this risk reduction still leaves you uncomfortable, you may want to consider L income now. As Rokid noted, G fund is not a great choice because your buying power will be eaten away by inflation and taxes. Even the most conservative L fund includes a 20% allocation to stocks.

[Pete1]

Regarding std, I guess the experts are encouraging investors to consider the potential of a 3 std annual loss during the investors lifetime. In the case of L2010, that would be pushing -22% using the TSP return/std assumptions listed on the fact sheet. This sounds unlikely given that 95% of the returns fall 2 stds below or 2 stds above the mean. A 3 std annual loss could happen but would be highly improbable. Still, every investor should keep in mind the possibility of a 3 std loss however improbable it may be.

[yakers]

If there is a 3 std loss before I actually retire I would just keep working. If I can accumulate funds from that very low level it will play out well financially over time. But if its after I retire I'm scr#w#D.

[Pete1]

A 3 std loss, especially just into retirement, would quite frankly, suck, especially for those depending on their TSP accounts for a significant chunk of their retirement income. Rick Ferri's new book "All About Asset Allocation" includes a gut check simulation that most would be wise to consider.

[Dave M]

Our in-house tally for Jan-Apr this year shows
L2040 at 5.46%
L2030 at 4.90%
L2020 at 4.36%
L2010 at 3.47% and
L-Income 2.05%.

Insofar as we are representative, the L2040 is doing better than 2/3rds of us. I am chasing it. If I can't overtake it Q2 this year, I am strongly considering joining it.

Dave

[biggdog1]

According to my record keeping for myself, I'm beating all L-Funds but not by much. I still say unless you are in retirement, don't want to bother etc. manage your own $$$ !

[FUTURESTRADER]

"Efficient Frontier"????..I dunno

[Dave M]

The standings, out of 66 accounts tracked:

L2040 27/66
L2030 30/66
L2020 34/66
L2010 45/66
L-Inc 50/66

For most of us, the L2040 would be an improvement. Fourteen people have made 20 or more IFT's this year, i.e., they're trying hard, and yet still trail this fund.

Dave

[Spaf]

:confused: Do we know what the average age is of the 66 members being used as a comparison?

The standings, out of 66 accounts tracked:

L2040 27/66
L2030 30/66
L2020 34/66
L2010 45/66
L-Inc 50/66

For most of us, the L2040 would be an improvement. Fourteen people have made 20 or more IFT's this year, i.e., they're trying hard, and yet still trail this fund.

Dave

[CountryBoy]

It really gives a person pause, don’t think that I haven’t thought about the L2040 returns since the report came out. :worried: I’ve made just a shade over 10% return on my TSP since the beginning of the year, although I’ve just been putting my allocations up in the last month or so. Heck, it would be easier just to put the money in , just not as fun or andrenaline pumping of course. :nuts:

The one reason, and I’d like to hear anymore, for continuing to make allocations based on information presented here, is that during downturns in the market, you can get out and then buy back in when you think the market is low enough for you. 11.47% is an impressive return, especially when my goal is 10% per year. I guess you can pop out of the L2040 also, but then that would seem to defeat the purpose of the L Fund. FYI, I’m 52 and 8 years from retiring, given todays environment.

I'm still wallering this thing around in my mind.


CB

[Bullishreturn]

You know, the more I look at the L2040- the better it seems to look.

I'm up about 18% for the year , but it took a LOT of work and worry to get that, and I really have a very hard time beating the L2040's consistant returns.

I may just park everything in L2040 for a while and enjoy the ride.

Today govexec.com has a good article on TSP,, including word that now 365,000 people are invested in L funds, and that total fund investments are approaching 200 billion dollars.

See the article at: http://www.govexec.com/story_page.cfm?articleid=35042&dcn=todaysnews

(for the record- I'm 46, been e fed for 12 years now, and have another 14 to go before I can afford to retire, unless I get this TSP thing rolling better...:-)

[Bullishreturn]

I'm still looking at the fine returns stacking up by the L40- balanced between stocks, bonds and G, it continues to do very well- even better than I have been able to produce this month being split between the three stock funds.

I have two TSP accounts- one military (Guard), and one civilian. I am now retired from the Guard, so only have about 2K in that one. But today I have decided to move that one all into L2040, and let it ride, and see how that one does for a while. Based on what I see, I may just end up putting a big chunk of my regular account into 2040- as that one seems to be very positive with a great balance on the risk/reward factor for me.

[Bullishreturn]

Note:

12-month rolling average for L funds now beating stocks in general:
Last 12 Months
(9/1/2005 - 8/31/2006)
L2040 11.47%
L2030 10.55%
L2020 9.95%
L2010 8.65%
LIncome 6.28%

Thats pretty darn good.

[Spaf]

I agree the L-funds are pretty darn good!

However, investors still need to manage their accounts, L-funds or not.

Correct me if I'm wrong. The L-funds tend to optimize risk vs age. Or somewhat of a middle path along a bell curve. The L-funds can only do so much. i.e., they can't keep up with extreme conditions such as strong advances or strong declines. Thus the risk vs age factor. They are for folks that do not want to manage their funds. Is this a contradiction, yes it is!

Here's what I know: The 2000 NASD crash was a titanic disaster to buy-an-hold investors. Can it happen again...possible. Our energy dependance, is like sitting on a keg of gun powder.

IMHO, Anyone in stocks/bonds should know how to reasonably manage them, i.e., selecting good funds, evaluating risk, cost, etc., and minimizing any loses.

Auto-pilot can not evaluate a poor flight plan, nor will it steer clear of thunderstorms.

[fedgolfer]

Note:

12-month rolling average for L funds now beating stocks in general:
Last 12 Months
(9/1/2005 - 8/31/2006)
L2040 11.47%
L2030 10.55%
L2020 9.95%
L2010 8.65%
LIncome 6.28%

Thats pretty darn good.

Is James AKA Gary Amelio :) 11.47% is great for the apathetic investor, supposedly 95% of Feds and 401K participants. But I'm sure there's several people on this board that have returned 11.4% since June of '06 by being active, taking calculated risks, and getting defensive in overbought markets. Just making small talk and still shaking my head after that Amelio/Causey interview.

[Birchtree]

The advantage all funds have is the concept of DCA - it's the great redeemer for a participant with a longer term horizon while getting educated or otherwise prepared. For example: if an investor did the DCA routine all the way up into 2000 that's not really a problem because they were buying less at the most expensive prices. While on auto-pilot to the downside the DCA allows one to purchase more shares at lower prices enjoying the pain along the way. The longer we bump on the bottom the more shares that are accumulated. When the next cycle starts the process repeats until at some point with enough shares on board the risk outweighs the buy and hold - then it's time to be proactive or go into a safe harbor. A simple strategy for the busy employee. But I wouldn't bother with L funds - your accumulation position becomes too thin. There is more bang for the dollar buying 1 selected fund.

[cruisecontrol]

I'm retired. I jumped 100% into the L fund at the first opportunity. If my plan works, I won't have to touch TSP for another 7 years...begin mandatory withdrawal.

While, I'm satisfied with the early results, it doesn't hurt to watch the competition. We rolled my spouse's non-TSP 401k into a couple of target retirement funds and will watch them over time to see how they perform vs. TSP. Rollover IRA is always an option.

My only wish for the L funds is that they would shorten their time intervals to 5 years instead of the current 10. Fidelity, for one, started their Freedom funds with a 10 year interval and later changed it to 5 years.

Cheers!

[Birchtree]

Cruisecontrol,

If you want you want to make some serious money in the next 18 months dump everything you own into the large caps like the C fund. The current price of the C fund is $15.17, still cheaper than the others which allows you to buy more shares. $0.38 more and I'm up $2.00 this year. For me that's hefty dollars. Think about the potential and stick you neck out some.

[cruisecontrol]

Thanks Birchtree.

I was big into the C fund for a good part of my working years...and the return on that helped me get to where I could sit back and watch my balance grow slowly but surely in retirement.

Getting back into C in retirement is a risk I don't need. Can't move new money into it to replace losses...except my traditional IRA which I already rolled into TSP.

My long-term view is that if I could understand the market well enough to get ahead of the wave, I could have given up my day job long ago.

[Birchtree]

Cruisecontrol,

Being retired presents you with an opportunity many don't have - it's called cash. Learn from these assortment of members and you can trade or pistol shoot your way into a more comfortable retirement. All you need now is an iron stomach and a full fledged bull market. I'm waiting one more year and then I pull out my own well oiled dual pearl handles - go Palladin.

[Fivetears]

Can't move new money into it to replace losses...except my traditional IRA which I already rolled into TSP. My long-term view is that if I could understand the market well enough to get ahead of the wave, I could have given up my day job long ago. Follow the top dogs advice, take an active approach learning to aggressively manage your TSP/401k and stay active on this board; you'll turn 6 figures into 7.
Even in retirement. :) With minimal risk.